Saturday, June 19, 2010


Complex Investment Decisions

The simple accept or reject investment decisions with conventional cash flows may not be quite common in practice. Generally, a firm faces complex investment situations and has to choose among alternatives. The use of the net present value (NPV) rule can be extended to handle complicated investment decisions.

The choice between mutually exclusive projects is a simple example of project interaction. Project interactions occur in numerous other ways.

The following are some of the complex investment problems, which we shall discuss in our next posts.
  • How shall choice be made between investments with different lives?
  • Should a firm make investment now, or should it wait and invest later?
  • When should an existing asset be replaced?
  • How shall choice be made between investments under capital rationing?

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