Investment Analysis Under Uncertainty

Investment projects are described in this paper as a pattern of uncertain cash flows over time; i.e., as a cash flow pattern over an event tree. Whereas the portfolio problem of selecting projects generally requires simultaneous consideration of all available projects, here we seek sufficient conditions for accepting and rejecting individual projects. These conditions are formulated as mathematical programming problems which are amenable to routine application at subordinate levels of an organization. "Investment is, in essence, present sacrifice for future benefit. But the present is relatively well known, whereas the future is always an enigma. Investment is also, therefore, certain sacrifice for uncertain benefit."¹