Capital-Budgeting Decisions Involving Combinations of Risky Investments
- 1 October 1966
- journal article
- Published by Institute for Operations Research and the Management Sciences (INFORMS) in Management Science
- Vol. 13 (2) , -84-84
- https://doi.org/10.1287/mnsc.13.2.b84
Abstract
In this paper, a method is proposed for evaluating combinations of investments when the cash flows are not known with certainty. Various probability concepts are employed; and combinations are evaluated according to their incremental contribution of expected net-present value and variance to the firm as a whole. It is shown that existing investment projects must be considered if the total risk of a particular combination of investment proposals is to be evaluated realistically. Through diversification of investments, a firm is able to obtain the most desirable combination of expected net-present value and risk.Keywords
This publication has 0 references indexed in Scilit: