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The development of cash flow weight procedures for maximizing the net present value of a project
Author(s) -
Baroum Sami M.,
Patterson James H.
Publication year - 1996
Publication title -
journal of operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.649
H-Index - 191
eISSN - 1873-1317
pISSN - 0272-6963
DOI - 10.1016/0272-6963(96)00005-8
Subject(s) - heuristics , cash flow , weighting , computer science , net present value , heuristic , mathematical optimization , rule of thumb , value (mathematics) , net (polyhedron) , operations research , algorithm , mathematics , economics , machine learning , finance , microeconomics , geometry , production (economics) , medicine , radiology
We describe in this paper the development of heuristic procedures for obtaining improved solutions to the maximize ion of net present value in a network problem. Optimization techniques have not been successful in solving this limited resource problem for large projects. As a result, rule‐of‐thumb heuristic approaches have historically been used to improve the financial returns from project activity. The heuristic procedures we describe assign weights to activities based upon the cumulative cash flows for the activity and all of its logical successors. Subsequent application of multi‐pass shifting algorithms search locally for improved activity assignments, resulting in increased project net present value over the initial solution obtained. Results reported demonstrate the efficacy of this approach over more traditional methods for solving this problem. We also contrast the cash flow weighting heuristics developed with other implementations of cash flow weighting procedures. Despite their inherent simplicity, the procedures described quite often produce improved results over other approaches when maximum net present value solutions are desired.