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Comment: Evaluating Negative Benefits

Published online by Cambridge University Press:  06 April 2009

James Miles  and
Dosoung Choi
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Extract

In a recent article [1], Beedles suggests that the valuation process for cash outflows (or negative benefits using his terminology) is, in some sense, different from the valuation process for cash inflows. This result, however, is not consistent with the assumption of perfect capital markets. Any cash outflow from one firm represents a cash inflow to some other firm(s) or investor(s). Consequently, any difference in the valuation processes for cash outflows and cash inflows will create profitable arbitrage possibilities.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 5 , December 1979 , pp. 1095 - 1099
Copyright
Copyright © School of Business Administration, University of Washington 1979

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References

REFERENCES

[1]Beedles, William L. “Evaluating Negative Benefits.” Journal of Financial and Quantitative Analysis, Vol. 13, No. 1 (03 1978), pp. 173–176.CrossRefGoogle Scholar
[2]Fama, Eugene F. “Risk-Adjusted Discount Rates and Capital Budgeting Under Uncertainty.” Journal of Financial Economics, Vol. 5, No. 1 (08 1977), pp. 3–24.CrossRefGoogle Scholar
[3]Haley, Charles W., and Schall, Lawrence D.. The Theory of Financial Decisions, New York, N.Y.: McGraw-Hill (1973).Google Scholar
[4]Lewellen, Wilbur G. “Some Observations on Risk-Adjusted Discount Rates.” Journal of Finance, Vol. 32, No. 4 (09 1977), pp. 1331–1337.Google Scholar
[5]Myers, Stewart C., and Turnbull, Stuart M.. “Capital Budgeting and the Capital Asset Pricing Model: Good News and Bad News.” Journal of Finance, Vol. 32, No. 2 (05 1977), pp. 321–333.CrossRefGoogle Scholar
[6]Robicheck, Alexander A., and Myers, Stewart C.. “Conceptual Problems in the Use of Risk-Adjusted Discount Rates.” Journal of Finance, Vol. 21, No. 5 (12 1966), pp. 727–730.Google Scholar