2008
DOI: 10.1080/17446540701704356
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Value-neutral tradeoffs between failure risk and growth

Abstract: Business choices typically entail tradeoffs between potential growth rates and the risk of failure. This note applies recent results from the theoretical valuation literature to characterize, as a benchmark, the terms of that tradeoff sufficient to leave the expected value of discounted cash flows unchanged. The central result indicates that risk-neutral investors could accept sizeable increases in risk in exchange for modest improvements in expected growth rates. The benchmark result can be used to rank proje… Show more

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