Ranking Investment Projects
AbstractThis paper describes conditions under which one investment project dominates a second project in terms of net present value, irrespective of the choice of the discount rate. The resulting partial ordering of projects has certain similarities to stochastic dominance. However, the structure of the net present value function leads to characterizations that are quite specific to this context. Our theorems use Bernstein's (1915) innovative results on the representation and approximation of polynomials, as well as other general results from the theory of equations, to characterize the partial ordering. We also show how the ranking is altered when the range of discount rates is limited or the rate varies period by period.
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Bibliographic InfoPaper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 01-06.
Date of creation: Apr 2001
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Other versions of this item:
- James E. Foster & Tapan Mitra, 2001. "Ranking Investment Projects," Vanderbilt University Department of Economics Working Papers 0107, Vanderbilt University Department of Economics.
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
- O22 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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