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Cost-Benefit Analysis for Investment Decisions: Chapter 4 (Discounting and Alternative Investment Criteria)

  • Glenn Jenkins

    (Queen's University, Canada and Eastern Mediterranean University, Cyprus)

  • Chun-Yan Kuo

    (Queen's University, Canada)

  • Arnold C. Harberger

    (University of California, Los Angeles, USA)

This chapter discusses the alternative investment criteria commonly used in the appraisal of investment projects. The net present value (NPV) of a project criterion is widely accepted by accountants, financial analysts, and economists as the one that yields the correct project choices in all circumstances. However, some decision makers have frequently relied upon other criteria such as the internal rate of return, the benefit-cost ratio, the pay-back period and the debt service capacity ratio. The strengths and weaknesses of these criteria are examined in this chapter in order to demonstrate why the NPV criterion is the most reliable.

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File URL: http://www.queensjdiexec.org/publications/qed_dp_197.pdf
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Paper provided by JDI Executive Programs in its series Development Discussion Papers with number 2011-04.

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Length: 31 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:qed:dpaper:197
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  1. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
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