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Capital Budgeting in a Competitive Environment

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 February 1991



The Net Present Value (NPV) criterion of project evaluation has traditionally been accepted as the theoretically superior capital budgeting technique due to its concordance with the principal of value maximization. Recently, several authors have criticized the application of this criterion in that it understates the true value of an investment by ignoring 1. strategic growth opportunities, 2. the fact that management can discontinue the project before the end of its economic life, 3. the ability of management to delay the investment decision, 4. the arrival of information throughout the life of the project, and 5. management's option to temporarily “shut down” the production process. Through these omissions, it has been asserted that the use of net present value criteria has undermined the levels of real investment in this country, and stunted economic growth.


Ang, J.S. and Dukas, S.P. (1991), "Capital Budgeting in a Competitive Environment", Managerial Finance, Vol. 17 No. 2/3, pp. 6-15.




Copyright © 1991, MCB UP Limited

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