- 31 Downloads
The desired end result of the capital budgeting process is the selection of an optimal portfolio of investments from a set of alternative investment proposals. An optimal portfolio of investments is defined as the set of investments that makes the greatest possible contribution to the achievement of the organization's goals, given the organization's constraints. The constraints faced by a corporation in the capital budgeting process can include limited supplies of capital or other resources as well as dependencies between investment proposals. A dependency occurs if two projects are mutually exclusive, acceptance of one requires rejection of the other, or if one project can be accepted only if another is accepted. Assuming that the organizational goals and constraints can be formulated as linear functions, the optimal set of capital investments can be found using linear programming (LP).
CAPITAL BUDGETING UNDER CAPITAL RATIONING
Capital rationingis a constrained capital budgeting...
- Baumol, W. J. and Quandt, R. E. (1965). “Investment and Discount Rates Under Capital Rationing — A Programming Approach.” Economic Jl. 75, 298, 317–329.Google Scholar
- Byrne, R., Charnes, A., Cooper, W. W., and Kortanek, K. (1967). “A Chance-Constrained Approach to Capital Budgeting with Portfolio Type Payback and Liquidity Constraints and Horizon Posture Controls.” Jl. Financial and Quantitative Analysis 2(4), 339–364.Google Scholar
- Byrne, R. F., Charnes, A., Cooper, W. W., and Kortanek, K. O. (1969). “A Discrete Probability Chance-Constrained Capital Budgeting Model-I.” Opsearch 6(3), 171–198.Google Scholar
- Freeland, J. R. and Rosenblatt, M. J. (1978). “An Analysis of Linear Programming Formulations for the Capital Rationing Problems.” Engineering Economist, Fall, 49–61. Google Scholar
- Hillier, F. S. (1969). The Evaluation of Risky Interrelated Investments. North Holland, Amsterdam.Google Scholar
- Levary, R. R. and Seitz, N. E. (1990). Quantitative Methods for Capital Budgeting. South-Western Publishing, Cincinnati.Google Scholar
- Näslund, B. (1966). “A Model of Capital Budgeting Under Risk.” Jl. Business 39(2), 257–271.Google Scholar
- Richard, S. F. (1979). “A Generalized Capital Asset Pricing Model.” Studies in the Management Sciences, 11, North Holland, Amsterdam, 215–232.Google Scholar
- Weingartner, H. M. (1967). Mathematical Programming and the Analysis of Capital Budgeting Problems. Markham Publishing, Chicago.Google Scholar