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Globalisation, Technology and Competition
In: Futures: the journal of policy, planning and futures studies, Band 26, Heft 10, S. 1108
ISSN: 0016-3287
DETERMINING THE APPROPRIATE DISCOUNT RATES IN PURE CAPITAL RATIONING
In: Decision sciences, Band 9, Heft 3, S. 391-401
ISSN: 1540-5915
AbstractThis paper proposes an interpretation of the pure capital rationing problem as it is faced by many managers in decentralized firms in which budgets serve as the principal means of control. It is argued that the appropriate objective for situations such as these is the maximization of either undiscounted earnings over the planning horizon or total value of the investments at the horizon. When either objective function is used in conjunction with the frequently encountered linear programming models for the capital rationing problem, shadow prices result which give rise to discount rates that will reproduce the optimal solution using discounted cash flow as a criterion. These results are then used as a means for clarifying several confusing and misleading statements that have appeared in the literature.