Multiperiod Capital Budgeting under Uncertainty: A Suggested Application

Haim Ben-Shahar and Frank M. Werner

Journal of Financial and Quantitative Analysis, 1977, vol. 12, issue 5, 859-877

Abstract: In recent years intensive work has been done applying the Sharpe-Lintner-Mossin Capital Asset Pricing Model to the multiperiod investment decision under uncertainty. The purpose of this paper is to develop a practical working procedure for use by the financial manager. We first develop the multiperiod capital budgeting decision criterion in a form that lends itself to application. Second, we propose a method of implementation, one that we have made operational in computer programs currently on the Columbia University computer system. This makes it possible to extend the evaluation to encompass typical capital budgeting problems which, until now, have been discussed only under certainty. In particular we deal with the case of capital rationing. We employ programming techniques for this analysis and interpret the meanings of the dual variables.

Date: 1977
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