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Parametric discounting

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  • Chapman, C. B.
  • Cooper, Dale F

Abstract

A parametric approach to the problem of selection from amongst alternative investment opportunities is considered in a discounted cash flow framework. The approach employs differential cash flows, an uncertain planning horizon and a nested approach to composing cash flow parameters. This promotes consistent treatment of alternative investments, clarifies the effects of uncertainty, avoids some of the defects of internal rate of return and payback period criteria and allows direct comparison of best and next best options as primal and dual versions of the same model. Net present value, internal rate of return, annual average cost or payback period assessments may be selected post analysis. A domestic wall insulation example is used for illustrative purposes. This example is related to the hydroelectric power development decision which gave rise to the approach.

Suggested Citation

  • Chapman, C. B. & Cooper, Dale F, 1983. "Parametric discounting," Omega, Elsevier, vol. 11(3), pages 303-310.
    • Handle: RePEc:eee:jomega:v:11:y:1983:i:3:p:303-310
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    Cited by:

    1. Chapman, Chris & Howden, Mike, 1997. "Two phase parametric and probabilistic NPV calculations, with possible deferral of disposal of UK nuclear waste as an example," Omega, Elsevier, vol. 25(6), pages 707-714, December.

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