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Simple Resource Allocation Rules: A Note On A Generalisation

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  • Andrew W. Stark

Abstract

A stream of literature exists on the ability to pick payback hurdles such that use of the payback method replicates decisions based on net present value (NPV) analysis under circumstances where the basic shape of the cash inflow pattern associated with the investment opportunity facing the firm is assumed known. The literature has derived such payback hurdles for specific cash inflow pattern shapes (e.g., level, exponentially increasing/decreasing, arithmetic growth, etc.) The main concern of this note is to identify an expression for a general class of cash inflow pattern shapes (of which the specific shapes in the previous literature are examples) from which can be derived the payback hurdle corresponding to any specific shape belonging to the general class.

Suggested Citation

  • Andrew W. Stark, 1993. "Simple Resource Allocation Rules: A Note On A Generalisation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 20(3), pages 411-416, April.
    • Handle: RePEc:bla:jbfnac:v:20:y:1993:i:3:p:411-416
    DOI: 10.1111/j.1468-5957.1993.tb00264.x
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