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Corporate Use of Sophisticated Capital Budgeting Techniques: A Strategic Perspective and a Critique of Survey Results

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  • Raj Aggarwal

    (College of Business Administration, The University of Toledo, Toledo, Ohio 43606 and Multinational Computer Models, Inc., Montclair, New Jersey 07042)

Abstract

Rosenblatt and Jucker [Rosenblatt, M. J., J. V. Jucker. 1979. Capital expenditure decision making: Some tools and trends. Interfaces 9 (2, February).] and Rappaport [Rappaport, Allen. 1979. A critique of capital budgeting questionnaires. Interfaces 9 (3, May).] in papers published recently in this journal have been engaged in a debate about the extent of the usage of sophisticated capital budgeting techniques in general and more specifically about the extent of the usage of discounted cash flow (DCF) techniques. Rosenblatt and Jucker contend that the use of DCF techniques has been increasing as indicated by the results of 10 surveys during the period 1955 to 1975. Rappaport contends, however, that since the surveys cited are not comparable we cannot say with any certainty that the use of DCF techniques is increasing. I have followed this debate with much interest. As an academic I have been teaching the topic to future business graduates with a firm conviction that the use of DCF rates by most business organizations is necessary and inevitable. As a consultant I just finished a major review of worldwide capital budgeting and strategic planning systems for a Fortune 100 company, in addition to having worked with a number of other major corporations in this area in the past. Unfortunately, the debate thus far has been deficient or incomplete regarding a number of aspects. I hope that this note will contribute towards a more complete understanding of the topic.

Suggested Citation

  • Raj Aggarwal, 1980. "Corporate Use of Sophisticated Capital Budgeting Techniques: A Strategic Perspective and a Critique of Survey Results," Interfaces, INFORMS, vol. 10(2), pages 31-34, April.
    • Handle: RePEc:inm:orinte:v:10:y:1980:i:2:p:31-34
    DOI: 10.1287/inte.10.2.31
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    Cited by:

    1. Brien, Mairead O, 1997. "Payback: A gulf between managerial accounting and financial theory in practice -- A view from accountants and finance officers in Ireland," The International Journal of Accounting, Elsevier, vol. 32(2), pages 173-186.
    2. Lefley, Frank & Morgan, Malcolm, 1998. "A new pragmatic approach to capital investment appraisal: The financial appraisal profile (FAP) model," International Journal of Production Economics, Elsevier, vol. 55(3), pages 321-341, August.
    3. W. Jan Brzeski & Austin J. Jaffe & Stellan Lundstrom, 1993. "Institutional Real Estate Investment Practices: Swedish and United States Experiences," Journal of Real Estate Research, American Real Estate Society, vol. 8(3), pages 293-324.
    4. Marilena Zuca, 2006. "The nature and diversity of governmental activities," Romanian Economic Business Review, Romanian-American University, vol. 1(4), pages 54-60, Winter.
    5. Lefley, Frank, 1997. "Approaches to risk and uncertainty in the appraisal of new technology capital projects," International Journal of Production Economics, Elsevier, vol. 53(1), pages 21-33, November.

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