ABSTRACT
Uncertainty is an inherent characteristic of investments. Causes of this uncertainty lie in the cash flows, interest rates and investment lifespans. And the only rational way to incorporate this uncertainty into an investment appraisal is through a probabilistic analysis. The analysis is still referred to as discounted cash flow (DCF) analysis, but now is probabilistic. This chapter outlines the background material necessary for the probabilistic (embodies uncertainty) case of investment appraisal. Subsequent chapters rely on this material.
