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Fuzzy numbers and net present value

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  • Gutiérrez, Isabel

Abstract

Net present value is a very common criterion in capital budgeting processes. Usually, uncertainty is treated by means of probability theory and net cash flows are included in the model as random variables. Nevertheless, the lack of accuracy in estimation of future net cash flows does not always follow a random variable but a fuzzy one. In this article Fuzzy set theory has thus been used as a tool in determining the net present value of an investment project. The cash flows and the rates of discount are viewed as fuzzy numbers. Two models are developed to study the isolated effects of each one of these variables on net present value calculations. A third model develops the joint effect of cash flows and the rates of discount. It is concluded that this approach is simpler in its process and assumes fewer hypotheses about the behaviour of the related variables than traditional models.

Suggested Citation

  • Gutiérrez, Isabel, 1989. "Fuzzy numbers and net present value," Scandinavian Journal of Management, Elsevier, vol. 5(2), pages 149-159.
    • Handle: RePEc:eee:scaman:v:5:y:1989:i:2:p:149-159
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    Citations

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    Cited by:

    1. Anna Łyczkowska-Hanćkowiak & Krzysztof Piasecki, 2018. "The present value of a portfolio of assets with present values determined by trapezoidal ordered fuzzy numbers," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 28(2), pages 41-56.
    2. Anna Łyczkowska-Hanćkowiak & Aleksandra Wójcicka-Wójtowicz, 2023. "On portfolio analysis using oriented fuzzy numbers for the trade-related sector of the Warsaw Stock Exchange," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 33(4), pages 155-170.
    3. Krzysztof M. Piasecki, 2011. "Effectiveness of securities with fuzzy probabilistic return," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 21(2), pages 65-78.
    4. Krzysztof Piasecki & Joanna Siwek, 2018. "The portfolio problem with present value modelled by a discrete trapezoidal fuzzy number," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 28(1), pages 57-74.
    5. Piasecki, Krzysztof, 2011. "Effectiveness of securities with fuzzy probabilistic return," MPRA Paper 46214, University Library of Munich, Germany.

    More about this item

    Keywords

    Fuzzy sets capital budgeting;

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