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Alternative Investment Decisions

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Describe the two distinct sets of project alternatives dealt with in every evaluation. In your description, identify an example of each set. Following the descriptions, discuss why the comparison of investment alternatives is difficult when each alternative is useful, even outside of the project.

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Investment opportunities come in the course of business operations. At times, they are all seen as feasible means that would add value to the firm. In this situation, considering scarce investable funds (or other possible uses of investable funds), there is a need to evaluate each of the alternatives, rank them in terms of the extent that, through its implementation, the total value of the firm would improve. As noted by Hirschey (2003), an economically sound capital budgeting decision rule must consistently lead to the acceptance of projects that will increase the value of the firm. The investment proposal or opportunity that is ranked highest will be accepted and the rest are rejected. In other situations, investment analysis tools allow one to determine readily proposals ...

Solution Summary

The alternatives of investment decisions are examined.