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CAPITAL BUDGETING: A FUZZY SET APPROACH FOR DETERMINING EXPECTED VALUE OF CASH FLOWS

Khursheed Omer, Andre de Korvin, Philip H. Siegel

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 1 January 1995

177

Abstract

This paper presents an alternative approach to the usual method of computing expected values of cash flows in capital budgeting situations. The approach is based on the more realistic notion that the cash flows, the probabilities assigned to the cash flows, or both are not always exactly known. Three cases representing different types of uncertainties relating to the cash flow prospects are presented and expected values are derived using the fuzzy set theory. The approach utilized in this paper provides an alternative to the prevalent methodology of estimating cash flows in capital budgeting. This approach offers greater flexibility in dealing with the complex issue of uncertainty than the prevalent probability‐based approach in cases where decisions are complex enough so that neither cash flows nor probability distributions are totally available.

Citation

Omer, K., de Korvin, A. and Siegel, P.H. (1995), "CAPITAL BUDGETING: A FUZZY SET APPROACH FOR DETERMINING EXPECTED VALUE OF CASH FLOWS", Asian Review of Accounting, Vol. 3 No. 1, pp. 105-125. https://doi.org/10.1108/eb060654

Publisher

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MCB UP Ltd

Copyright © 1995, MCB UP Limited

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