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SIMPLE RESOURCE ALLOCATION RULES: A NOTE ON A GENERALISATION
Author(s) -
Stark Andrew W.
Publication year - 1993
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1993.tb00264.x
Subject(s) - net present value , inflow , class (philosophy) , simple (philosophy) , investment (military) , cash , cash flow , mathematics , value (mathematics) , expression (computer science) , payback period , econometrics , economics , mathematical economics , computer science , microeconomics , statistics , production (economics) , artificial intelligence , geography , finance , philosophy , programming language , epistemology , politics , meteorology , political science , law
A stream of literature exists on the ability to pick payback hurdles such that use of the payback method replicates decisions based on net present value (NPV) analysis under circumstances where the basic shape of the cash inflow pattern associated with the investment opportunity facing the firm is assumed known. The literature has derived such payback hurdles for specific cash inflow pattern shapes (e.g., level, exponentially increasing/decreasing, arithmetic growth, etc.) The main concern of this note is to identify an expression for a general class of cash inflow pattern shapes (of which the specific shapes in the previous literature are examples) from which can be derived the payback hurdle corresponding to any specific shape belonging to the general class.