The objective of this paper is to investigate the decision-making procedure for accepting or rejecting investment or financing alternatives available to the firm. The properties of the decision rules based on discounted present value and internal rate of return are studied for the class of projects described by a finite sequence of cash flows. The necessary and sufficient conditions under which the decision rules lead to unique solutions are derived. Where the decision rule does not provide a unique solution, it is necessary to define two rates: the project investment rate and the project financing rate. The extension of the project analysis in terms of the two rates permits the derivation of unambiguous decision rules for all projects. The relevance of the results is discussed in the summary.
The purpose of this paper is to prove certain properties of the present and future values of a sequence of cash flows which have applications in the theory of capital budgeting. This is done in Theorems III, IV and V. As an introduction, certain previously available results about the present value function are stated and proved as Theorems I and II. A summary of the relevance of these results in capital budgeting is given in the Summary.
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