Ranking investment projects

James Foster () and Tapan Mitra

Economic Theory, 2003, vol. 22, issue 3, 469-494

Abstract: This paper describes conditions under which one investment project dominates a second project in terms of net present value, irrespective of the choice of the discount rate. The resulting partial ordering of projects has certain similarities to stochastic dominance. However, the structure of the net present value function leads to characterizations that are quite specific to this context. Our theorems use Bernstein's (1915) innovative results on the representation and approximation of polynomials, as well as other general results from the theory of equations, to characterize the partial ordering. We also show how the ranking is altered when the range of discount rates is limited or the rate varies period by period. Copyright Springer-Verlag Berlin Heidelberg 2003

Keywords: JEL Classification Numbers: D92; G31; H043; O22.; Keywords and Phrases: Investment projects; Present value; Stochastic dominance; Polynomials; Rate of return over cost; Time dominance. (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s00199-002-0339-y

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