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...
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Baumol, W. J. and Quandt, R. E. (1965). “Investment and Discount Rates Under Capital Rationing — A Programming Approach.” Economic Jl. 75, 298, 317–329.
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.
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.
Freeland, J. R. and Rosenblatt, M. J. (1978). “An Analysis of Linear Programming Formulations for the Capital Rationing Problems.” Engineering Economist, Fall, 49–61.
Hillier, F. S. (1969). The Evaluation of Risky Interrelated Investments. North Holland, Amsterdam.
Levary, R. R. and Seitz, N. E. (1990). Quantitative Methods for Capital Budgeting. South-Western Publishing, Cincinnati.
Näslund, B. (1966). “A Model of Capital Budgeting Under Risk.” Jl. Business 39(2), 257–271.
Richard, S. F. (1979). “A Generalized Capital Asset Pricing Model.” Studies in the Management Sciences, 11, North Holland, Amsterdam, 215–232.
Weingartner, H. M. (1967). Mathematical Programming and the Analysis of Capital Budgeting Problems. Markham Publishing, Chicago.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2001 Kluwer Academic Publishers
About this entry
Cite this entry
Levary, R.R. (2001). Capital budgeting . In: Gass, S.I., Harris, C.M. (eds) Encyclopedia of Operations Research and Management Science. Springer, New York, NY. https://doi.org/10.1007/1-4020-0611-X_99
Download citation
DOI: https://doi.org/10.1007/1-4020-0611-X_99
Published:
Publisher Name: Springer, New York, NY
Print ISBN: 978-0-7923-7827-3
Online ISBN: 978-1-4020-0611-1
eBook Packages: Springer Book Archive