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BETTER MANAGEMENT OF CAPITAL EXPENDITURES THROUGH RESEARCH *

BETTER MANAGEMENT OF CAPITAL EXPENDITURES THROUGH RESEARCH * DEAN? Columbia University and Joel Dean Associates I. INTRODUCTION ECONOMIC FINANCIAL RESEARCH can make major contributions AND to the management of capital expenditures. There is a long cultural lag between the capital budgeting practices of otherwise well-managed companies and the best modern techniques for planning, appraising, and controlling business investment. To close this gap a research approach is needed. In support of this contention this paper examines the following three practical problems of capital management and outlines the role of research in each: 1. Measuring worth of individual investment proposals 2. Setting up and applying standards for screening these proposals 3. Projecting the firm’s demand for and supply of capital funds 11. MEASURING WORTHOF INVESTMENT THE PROPOSALS The basic requirement for an effective system of capital management is good estimates of the investment worth of proposed capital expenditures. ALTERNATIVE INDEXES OF INVESTMENT WORTH There are three basic types of indexes in common use for measuring the worth of investment proposals: (1) postponability, ( 2 ) payback period, (3) rate-of-return. Postponability, i.e., whether or not the capital expenditure can * This paper by Joel Dean and the following two papers, one by Jonathan A. Brown and Howard C. Bronson, http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

BETTER MANAGEMENT OF CAPITAL EXPENDITURES THROUGH RESEARCH *

The Journal of Finance , Volume 8 (2) – May 1, 1953

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Publisher
Wiley
Copyright
1953 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1953.tb01149.x
Publisher site
See Article on Publisher Site

Abstract

DEAN? Columbia University and Joel Dean Associates I. INTRODUCTION ECONOMIC FINANCIAL RESEARCH can make major contributions AND to the management of capital expenditures. There is a long cultural lag between the capital budgeting practices of otherwise well-managed companies and the best modern techniques for planning, appraising, and controlling business investment. To close this gap a research approach is needed. In support of this contention this paper examines the following three practical problems of capital management and outlines the role of research in each: 1. Measuring worth of individual investment proposals 2. Setting up and applying standards for screening these proposals 3. Projecting the firm’s demand for and supply of capital funds 11. MEASURING WORTHOF INVESTMENT THE PROPOSALS The basic requirement for an effective system of capital management is good estimates of the investment worth of proposed capital expenditures. ALTERNATIVE INDEXES OF INVESTMENT WORTH There are three basic types of indexes in common use for measuring the worth of investment proposals: (1) postponability, ( 2 ) payback period, (3) rate-of-return. Postponability, i.e., whether or not the capital expenditure can * This paper by Joel Dean and the following two papers, one by Jonathan A. Brown and Howard C. Bronson,

Journal

The Journal of FinanceWiley

Published: May 1, 1953

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