Asset valuation, Price-level adjusted accounting, Uncertainty, Estimation theory

Allocation problem, Estimation, Brief-Owen model

Allocation, Uncertainty, Future cash flow, Estimation

Jeffrey E. Jarrett, An Investigation into the Effects of Independent Investor Relations Firms on Common Stock Prices: Discussion, The Journal of Finance, Vol. 28, No. 2, Papers and Proceedings of the Thirty-First Annual Meeting of the American Finance Association Toronto, Canada, December 28-30, 1972 (May, 1973), pp. 404-405

IN A RECENT ARTICLE in this Journal, Brief and Owen [2] indicated how the coeffident of variation might formally enter into the evaluation of risky projects by considering the rate of return as a random variable. They use the coefficient of variation of the distribution of future cash flows as a measure of earnings risk and find a formal mechanism for relating the coefficient to risk in the world of uncertainty. However, if the distribution of future cash flows is asymmetrical, higher moments may have significant values. Thus, in the case of capital budgeting, skewness in the direction of undesirable returns, i.e., less than average, is particularly important in the evaluation of projects. Since Arditti [1] concluded"that the second and third moments of the probability distribution are reasonable risk measures," Brief and Owen's model can be extended to include the third moment. Defining C as the cost of capital, X as the net cash flows before deducting C, r as the rate of return on cost, and s as the rate of return on net cash flows, we have

This article evaluates students' perception of the presence of forecast data within traditional accounting statements. The data base utilized was generated by simulating financial statements containing varying forecast disclosure formats. The statements were generated under two conditions, unbiased versus intentionally biased forecasts and high versus low variation in the financial data over time. The data sets were distributed to students, and their responses were analyzed using analysis-of-variance. Disclosure of the point estimate of earnings per share, confidence interval and ratio of predictive ability were the most useful methods in this experiment for predicting future earnings per share.