Duration Measures for Corporate Project Valuation

18 Pages Posted: 4 Mar 2005

See all articles by Tom Arnold

Tom Arnold

University of Richmond - E. Claiborne Robins School of Business

David S. North

University of Richmond - E. Claiborne Robins School of Business

Date Written: February 23, 2005

Abstract

Sensitivity analysis is a very common exercise performed with the forecasting of project cash flows. In this paper, a duration-type measure is generated that provides a single number for the assessment of the project cash flows relative to changes in the discount rate (or adjusted for changes in a particular model parameter). The calculation is no more difficult than the duration measures that already exist for bonds. Yet, the calculation provides valuable insight that many times is lost when performing sensitivity analysis.

Keywords: sensitivity analysis, duration, NPV, payback period, adjusted payback period, cash flow

JEL Classification: G30, G31

Suggested Citation

Arnold, Thomas M. and North, David S., Duration Measures for Corporate Project Valuation (February 23, 2005). Available at SSRN: https://ssrn.com/abstract=675860 or http://dx.doi.org/10.2139/ssrn.675860

Thomas M. Arnold

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States
804-287-6399 (Phone)
804-289-8878 (Fax)

David S. North (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States

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