Cost-Benefit Analysis for Investment Decisions: Chapter 4 (Discounting and Alternative Investment Criteria)

Glenn Jenkins (jenkins@econ.queensu.ca), Chun-Yan Kuo and Arnold Harberger (harberger@econ.ucla.edu)
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Chun-Yan Kuo: Queen's University, Canada

No 2011-04, Development Discussion Papers from JDI Executive Programs

Abstract: This chapter discusses the alternative investment criteria commonly used in the appraisal of investment projects. The net present value (NPV) of a project criterion is widely accepted by accountants, financial analysts, and economists as the one that yields the correct project choices in all circumstances. However, some decision makers have frequently relied upon other criteria such as the internal rate of return, the benefit-cost ratio, the pay-back period and the debt service capacity ratio. The strengths and weaknesses of these criteria are examined in this chapter in order to demonstrate why the NPV criterion is the most reliable.

Keywords: Investment Appraisal; Discount Rate; Project Appraisal (search for similar items in EconPapers)
JEL-codes: H43 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2011-08
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Citations: View citations in EconPapers (128)

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