Estimating expected marginal future cash flows: The real challenge of the NPV
2015
This article argues that we do students a disservice in the teaching of the process to determine the net present value (NPV) of a potential project. Typically, students are given expected future marginal cash flows of some project along with the initial cost of undertaking the opportunity. They are then given some type of information that allows them to estimate an appropriate discount rate at which the future flows are to be converted into present dollars. This article calls for the broader use of a more generalized approach that would require students to estimate future marginal cash flows themselves.
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