Abstract
The first two chapters of this book present techniques for choosing among projects with cash flows which occur over several time periods. The first chapter uses multiobjective methods to choose the combination of projects with the highest net present value (NPV). The second chapter describes and illustrates the behavioral limitations of NPV and presents several methods for adjusting for time and risk. This chapter presents an alternative to the NPV formulation. First we show that the NPV formulation is a special case of optimizing a multiattribute value function and that this special case requires restrictive assumptions about the decision maker’ preferences over time. We then show that multiobjective linear programming methods can be used to produce a set of nondominated solutions. This multiobjective approach is analytically tractable and requires no assumptions about the decision maker’ time preferences.
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© 2003 Springer Science+Business Media New York
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Graves, S.B., Ringuest, J.L., Medaglia, A.L. (2003). The Linear Project Selection Problem: An Alternative to Net Present Value. In: Models & Methods for Project Selection. International Series in Operations Research & Management Science, vol 58. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-0280-7_3
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DOI: https://doi.org/10.1007/978-1-4615-0280-7_3
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4613-5001-9
Online ISBN: 978-1-4615-0280-7
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