Tuesday, April 5, 2011

In the steps of his mentor

As Jack Treynor developed CAPM, he found a way to discount an uncertain set of cash flows back, for a single period, so a present value of a project could be calculated. The problem was that many firms look at projects across multiple periods. Fischer eventually found a way to discount cash flows back multiple periods, instead of the single periods CAPM allowed. His solution however was too complex for widespread application. A couple of years later he found a simpler way to solve the problem. Fischer’s approach was to have people develop a certain set of conditions and then discount t their projects based on those decisions. Fischer followed this discovery with a publication guiding people how to make practical decisions about the conditions that will prevail in the future.

1 comment:

  1. B for Skylar: typos.

    I think this is the most amazing section in the book, because it describes an excellent idea that is still out there, and which will be the wave of the future. But go read it for yourself ...

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