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The Growth Period Decision

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  • Harold Bierman, Jr.

    (Cornell University)

Abstract

Economists have for many years been interested in the problem of finding the optimum investment period for an appreciating or growing asset. Two basic solutions have been offered: maximization of the present value of the asset's anticipated earnings stream (for example, recommended by Irving Fisher) and maximization of the asset's internal rate of return (for example, recommended by Kenneth Boulding). This paper discusses the results of using the present value and rate of return procedures and suggests a desirable modification to the present value approach recommended by Fisher. The examples of this paper will be in the context of the timber industry, however the models apply to any economic situation where the value of an asset is increasing through time. A classical example is the aging of wine. Another practical example is the growth of cattle. In addition, it should be noted that the difficulties with the internal rate of return that are illustrated, are applicable to a wide range of business decisions.

Suggested Citation

  • Harold Bierman, Jr., 1968. "The Growth Period Decision," Management Science, INFORMS, vol. 14(6), pages 302-309, February.
    • Handle: RePEc:inm:ormnsc:v:14:y:1968:i:6:p:b302-b309
    DOI: 10.1287/mnsc.14.6.B302
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    Cited by:

    1. F. J. Anderson, 1979. "Ontario Reforestation Policy: Benefits and Costs," Canadian Public Policy, University of Toronto Press, vol. 5(3), pages 336-347, Summer.
    2. Newman, D.H., 2002. "Forestry's golden rule and the development of the optimal forest rotation literature," Journal of Forest Economics, Elsevier, vol. 8(1), pages 5-27.

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