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Commercial Appraiser

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Commercial Appraiser-Appraisal 310.337.1973 - Investment under Uncertainty | Princeton University Press
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« Game Theory and Real Options: Analysis of Land Value and Strategic Decisions in Real Estate Development | Main | Tax increment financing (TIF) produces uneven results for economic development and needs reform, new research shows | Lincoln Institute of Land Policy »

June 25, 2020


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Commercial Appraiser CRE BLOG, 310.337.1973

1 The Orthodox Theory
How should a firm, facing uncertainty over future market conditions, decide whether
to invest in a new factory? Most economics and business school students are taught a
simple rule to apply to problems of this sort. First, calculate the present value of the
expected stream of profits that this factory will generate. Second, calculate the present
value of the stream of expenditures required to build the factory. Finally, determine
whether the difference between the two - the net present value (NPV) of the investment -
is greater than zero. If it is, go ahead and invest.

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