EVALUATING MUTUALLY EXCLUSIVE INVESTMENT ALTERNATIVES: RATE OF RETURN METHODOLOGY RECONCILED WITH NET PRESENT WORTH

IN BOTH TRANSPORTATION PLANNING AND INVESTMENT ANALYSIS LITERATURE OF RECENT YEARS AN OCCASIONAL INCONSISTENCY HAS BEEN REPORTED BETWEEN THE RESULTS OF THE RATE OF RETURN APPROACH AND THE NET PRESENT WORTH APPROACH TO THE EVALUATION OF MUTUALLY EXCLUSIVE INVESTMENT ALTERNATIVES. THIS PAPER REVIEWS BOTH APPROACHES TO INVESTMENT ANALYSIS AND PROPOSES A REFINEMENT IN THE RATE OF RETURN APPROACH. THE REFINEMENT INVOLVES AN EXAMINATION OF INCREMENTAL CASH FLOWS EVEN WHEN THE ALTERNATIVES HAVE EQUAL INITIAL INVESTMENTS AND/OR DIFFERING LIFE SPANS. THE REFINEMENT IS CONSISTENT WITH THE INTENT OF THE APPROACH AS ALREADY DESCRIBED IN THE LITERATURE AND YIELDS CONCLUSIONS THAT ARE MORE OFTEN IDENTICAL TO THE CONCLUSIONS THAT RESULT FROM APPLICATION OF THE NET PRESENT WORTH APPROACH.

Media Info

  • Media Type: Print
  • Features: Figures; References;
  • Pagination: pp 75-82
  • Monograph Title: Transportation systems planning and resource allocation
  • Serial:

Subject/Index Terms

Filing Info

  • Accession Number: 00202421
  • Record Type: Publication
  • ISBN: 0309022517
  • Files: TRIS, TRB
  • Created Date: May 15 1974 12:00AM