Capital Expenditure Decision/Making: Some Tools and Trends

Meir J. Rosenblatt and James V. Jucker
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Meir J. Rosenblatt: Department of Industrial Engineering, Stanford University, Stanford, California 94305
James V. Jucker: Department of Industrial Engineering, Stanford University, Stanford, California 94305

Interfaces, 1979, vol. 9, issue 2-part-1, 63-69

Abstract: During the past two decades, several independent surveys were conducted to determine the art and science of capital budgeting, as practiced in business and industry. This paper outlines a synthesis of the various surveys and highlights some changes and trends regarding the adoption of quantitative tools in the capital budgeting process. The topics to be discussed include the use of discounting methods, the determination of discount and cut-off rates, the use of mathematical programming and capital rationing, and approaches to risk and uncertainty in the capital budgeting process. Before beginning, three possible sources of bias in what is reported here must be acknowledged. First, the various surveys included firms which were selected using a variety of criteria. However, it is entirely possible, even likely, that some firms participated in more than one of the surveys. Second, the surveys in total contain a disproportionately large fraction of very large firms. Third, as is true in many surveys, the results reported here may well be biased by the self-selection which takes place when firms decide to participate.

Date: 1979
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