Abstract
Investments are among the most important factors of national economic growth. Selection of optimal investment project is the first priority for any enterprise with limited financial resources. This study is dedicated to a choice among mutually exclusive projects, which are impossible to complete partially, so, one project must be chosen and all others must be rejected. An investor must find among all possible projects the one that allows to better achieve all investor’s aims. A mathematical model of multi-purpose multi-criteria investor decision making is proposed for investment project selection problem. Efficiency and riskiness of studied projects are evaluated using such indicators as profit, rate of return, payback period, marginal cost of capital, also taking into account subjective characteristics, namely the investor’s attitude towards financial risks, importance assessment of decision making criteria, etc. Decision making assessment methods for the situations of risk and uncertainty are applied to resolve the problem of optimal project selection, such as Wald’s pessimistic criterion, maximax optimistic criterion, as well as Hurwicz’s, Laplace’s, Bayes- Laplace, Hodges-Lehmann criteria, and Savage’s minimax risk criterion. Calculations carried out and results obtained indicate that the best investment project chosen that way will provide the highest absolute profit, despite certain disadvantages such as lower rate of return, longer payback period and higher risk than other projects.
Highlights
Investment activity of enterprises is always connected with the problem of limited investment resources
A mathematical model of multi-purpose multi-criteria investor decision making is proposed for investment project selection problem
Calculations carried out and results obtained indicate that the best investment project chosen that way will provide the highest absolute profit, despite certain disadvantages such as lower rate of return, longer payback period and higher risk than other projects
Summary
Investment activity of enterprises is always connected with the problem of limited investment resources. The main source of investments in Ukraine is own funds of enterprises. Rational usage of such funds is a key task. An investor usually can’t foresee all possible investment options, and needs to make decisions, choosing the best strategy to achieve his own goals. In the multi-purpose decision making, a number of goals must be achieved by the selected investment option in the maximum possible degree, measured by several criteria. The task of making a multi-purpose project selection is to identify and simultaneously optimize several parameters that affect each goal. Such parameters are often interrelated, and controversial. In order to make settlements, the investor, first of all, should formulate the initial conditions of the task, which consists in determining the objectives of decision making and criteria for assessing the degree of achievement of each goal, the possible investor strategies and the state of the economic environment
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