Evaluating Interrelated Capital Projects: An Alternative Framework

Abstract

ABSTRACT There is substantial agreement in the capital budgeting literature that the presence of project interactions has to be recognized in evaluating capital projects. Most existing approaches require the explicit assessment of such interactions, which is an extremely difficult task. This paper proposes an alternative framework to overcome this difficulty. The suggested framework utilizes the accounting relationships inherent in the Impact of the projects to evaluate complex interactions. The framework is first presented in terms of a heuristic selection rule and subsequently formulated as a non-linear zero-one programming problem.