Investment appraisal under conditions of continuous and discrete cash flows and discounting

Abstract

PurposeThis research furthers scholarly discourse which discusses the most effective way(s) to calculate investment returns under conditions of continuous and/or discrete cash flows with continuous and/or discrete discounting.Design/methodology/approachDiscusses Pogue's work on the methods for investment analysis.FindingsPogue's article of discrete versus continuous calculation of investment returns discusses limitations of the traditional assumption that cash flows in investment appraisal occur at the end of each period and points to a more realistic assumption that cash flows occur on a continuous basis. Pogue then proposes a formula for managers to use when calculating investment returns. Finds that Pogue's suggested method of calculation is neither supported by prior literature nor sound in its implications.Originality/valueProvides further analysis of discrete and continuous discounting models in investment decisions.