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Uncertainty and its Effect on Capital Investment Analysis

Author

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  • Martin B. Solomon, Jr.

    (University of Kentucky, Lexington)

Abstract

When uncertainty concerning costs, revenues, and project life exists, classical measures of capital investment return are limited in value. Sensitivity analysis indicates that relatively small over estimates and under estimates create relatively large errors in the discounted rate of return for different types of return schedules. Perhaps, then, businessmen are justified in seeking other methods of project evaluation.

Suggested Citation

  • Martin B. Solomon, Jr., 1966. "Uncertainty and its Effect on Capital Investment Analysis," Management Science, INFORMS, vol. 12(8), pages 334-339, April.
  • Handle: RePEc:inm:ormnsc:v:12:y:1966:i:8:p:b334-b339
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    File URL: http://dx.doi.org/10.1287/mnsc.12.8.B334
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    References listed on IDEAS

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    1. M. E. Salveson, 1956. "A Problem in Optimal Machine Loading," Management Science, INFORMS, vol. 2(3), pages 232-260, April.
    2. M. Beckman & R. Muth, 1956. "An Inventory Policy for a Case of Lagged Delivery," Management Science, INFORMS, vol. 2(2), pages 145-155, January.
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    Cited by:

    1. Anderson, J.R., 1989. "Forecasting, uncertainty, and public project appraisal," Policy Research Working Paper Series 154, The World Bank.
    2. Cassidy, P.A. & Rodgers, J.L. & McCarthy, W.O., 1970. "A Simulation Approach to Risk Assessment in Investment Analysis," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 38(01), March.

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