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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
    DOI: 10.1287/mnsc.12.8.B334
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    Cited by:

    1. 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), pages 1-22, March.
    2. Roger P. Bey, 1980. "Calculating Means And Variances Of Npvs When The Life Of The Project Is Uncertain," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 3(2), pages 139-152, June.
    3. Anderson, J.R., 1989. "Forecasting, uncertainty, and public project appraisal," Policy Research Working Paper Series 154, The World Bank.

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