Conference Proceedings

Capital Budgeting: The Role of Cost Allocations

Ian Gow, Stefan Reichelstein

Operations Research Proceedings 2006 | Springer Berlin Heidelberg | Published : 2007

Abstract

A common issue for firms is how to allocate capital resources to various investment alternatives. An extensive literature in finance has examined various aspects of capital budgeting, including capital constraints, the determination of discount rates, and alternative approaches to estimating cash flows and handling risk, such as real options techniques. In terms of organizational structure, a central feature of the capital budgeting process in large firms is that relevant information about the profitability of potential investment projects resides with one or several managers. It is generally accepted that preferences of these managers may not coincide with those of the firm’s owners (the pr..

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