A Comparison of Decision Criteria for Capital Investment Decisions

Capital investment decisions, at least the quantitative portion, are usually based on one of several possible decision criteria. The analysis and calculations required to base the capital investment decision on one criterion only require a relatively small extension to allow the decision to be based, or at least compared, on several decision criteria. This paper analyzes seven capital investment decision criteria, including six objective and one subjective one, and illustrates how a typical capital investment problem can be analyzed on the basis of the seven decision criteria. Computer simulation is used to determine the outcomes of the hypothetical capital investment projects.