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The Development of a Mean-Semivariance Approach to Capital Budgeting

Published online by Cambridge University Press:  19 October 2009

R. Burr Porter ,
Roger P. Bey  and
David C. Lewis
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Extract

Recent trends in capital budgeting have been toward more complex decision rules with increasingly sophisticated treatments of risk. Although they have the virtue of simplicity, undiscounted methods such as the payback do not account for the time value of money. Net present value and internal rate of return consider the time value of money but many questions remain about the proper discount rate, the reinvestment assumption, and the statistical interrelations among projects. The latest approaches, referred to as portfolio models, are substantially more complicated but are the only methods that consider the statistical interrelations among the various assets. The most popular portfolio approach has been the mean-variance (E-V) model developed by Sharpe [10] and Lintner [5].

Type
VI. Capital Budgeting Decsions
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 4 , November 1975 , pp. 639 - 649
Copyright
Copyright © School of Business Administration, University of Washington 1975

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References

REFERENCES

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