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HEURISTIC ALGORITHMS FOR CAPITAL‐BUDGETING DECISIONS IN MULTIDIVISION FIRMS
Author(s) -
Rosenblatt Meir J.,
Freeland James R.
Publication year - 1980
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1980.tb01128.x
Subject(s) - division (mathematics) , capital budgeting , heuristic , capital allocation line , computer science , capital (architecture) , operations research , cash flow , economics , microeconomics , mathematical optimization , finance , mathematics , profit (economics) , arithmetic , archaeology , artificial intelligence , project appraisal , history
This paper presents two versions of a heuristic algorithm to solve a model of the capital‐budgeting problem in a decentralized multidivision firm involving no more than two exchanges of information between headquarters and divisions. Headquarters makes an allocation of funds to each division based upon its cash demand and its potential growth rate. Each division determines which projects to accept. Then, an additional iteration is performed to define the solution. More than one thousand examples were simulated resulting in an average relative error of less than one percent.