Discounted cash-flows analysis: An interactive fuzzy arithmetic approach

Abstract

Many models used in management and economics are based on an arithmetic basis. Moreover, the imperfection of generally available informa- tion in these disciplines has led to numerous decision support systems based on fuzzy arithmetic. However, their practical use did not have success expected, because their output were generally too imperfect to help a manager with relevant information. This paper outlines a computational method for decreasing the imper- fection of the output of fuzzy arithmetic models. We suggest an approach aiming at integrating into the arithmetic models fuzzy information still not taken into account: the vague knowledge of the interaction potentially existing between the two variables of an arithmetic operation (addition, subtraction, division or prod- uct). Thanks to the modelling of three standard relations, we propose a solution towards an interactive fuzzy arithmetic, which reduces the imperfection of the out- put to help the decision maker. We apply this approach to the choice of investment by the criterion of the Net Present Value resulting from a Discounted Cash-Flows Analysis.