In capital budgeting it is common practice to discount expected cash flows with a constant risk adjusted discount rate. This discount rate often is derived on the basis of the capital asset pricing model. Within this paper sufficient conditions for supporting this discounting rule will be reviewed and its relation to option pricing theory will be clarified. The analysis is based on a joint binomial model for cash flows and market rates of return. The results show that if the analysis is based on a joint binomial model, the restrictive assumptions of the capital asset pricing model can be relaxed.
All policies start with full cost introductory prices but differ in second-period pricing.
The theory of compensating wage differentials is generally accepted. It states that firms have to pay wage bonuses for hazardous work. However, there is as yet no strong or even contrary evidence for compensating wage differentials in Germany. Taking into account these results, the incentives for German firms to invest in accident prevention are discussed in the context of the existing institutional conditions.