CRITERIA FOR PROGRAMMING INVESTMENT PROJECT SELECTION

USE OF MATHEMATICAL PROGRAMMING PERMITS THE WHOLE SET OF INVESTMENT ALTERNATIVES TO BE CONSIDERED AS A PROGRAM. COMPLEX INTERRELATIONSHIPS AMONG INVESTMENT PROJECTS CAN BE STATED AND ANALYZED AT ONE TIME AS CAN THE FINANCIAL INTERRELATIONSHIPS IMPOSED BY CAPITAL RATIONING. THE QUESTION OF WHAT DISCOUNT RATE TO USE FOR CALCULATING PRESENT VALUES MUST BE FACED SQUARELY, THE ORDINARY RATE REFERRED TO AS THE COST OF CAPITAL, MAY NOT BE APPROPRIATE. A PROPOSAL MADE IN THE LITERATURE TO AVOID THE DISCOUNTING PROBLEM ENTIRELY IS TO SUBSTITUTE THE UTILITY OF THE EXPECTED DIVIDENDS TO BE GENERATED BY THE PROJECTS. THIS RAISES MORE PROBLEMS THAN IT SOLVES, AND ITS FATAL DEFECT IS THAT IT TAKES NO ACCOUNT OF THE REAL, NOT FORMAL ORIGIN OF THE FINANCIAL CONSTRAINTS, WHICH MAY BE TEMPORARY OR LONG- RANGE, INTERNALLY OR EXTERNALLY IMPOSED, AND MAY BE A RESPONSE TO THE NEEDS FOR MANAGEMENT PLANNING OR FOR FINANCIAL CONTROL WITHIN THE FIRM, TWO VERY DIFFERENT OBJECTIVES. MODELS ARE PROPOSED FOR PRESENTING THE POSSIBLE ALTERNATIVE INVESTMENT PROGRAMS IN TERMS OF THEIR IMPACT ON POTENTIAL DIVIDEND PAYOUT POLICIES, AVOIDING PRESCRIPTION OF UTILITIES WHICH ARE UNREAL OR PURELY FORMAL, ESPECIALLY IN THE ABSENCE OF KNOWLEDGE OF ALTERNATIVES. /AUTHOR/

  • Availability:
  • Supplemental Notes:
    • Vol 15, pp 65-76
  • Corporate Authors:

    N/A

    ,   USA 
  • Authors:
    • Weingartner, H M
  • Publication Date: 1966-11

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  • Accession Number: 00201374
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Jun 18 2003 12:00AM