A computer simulation model regarding the comparision of the effectiveness of capital investment ranking criteria

Abstract

In the research reported here, the effectiveness of five capital investment ranking criteria are investigated by a simulation model under uncertain inflationary environment where the end results are evaluated in a comparative way. The investment alternatives studied by the simulation model based on realistic data obtained from Türkiye Sınai Kalkınma Bankası A.S. were evaluated according to five capital investment ranking criteria. The results of the net present worth of the firm and the profitability per year were compared for each ranking criteria. Findings of the research show that the investment ranking criteria which takes into consideration the time value of money are significantly better than the criteria which does not take into consideration the time value of money. It is also observed that as the initial investment level increases the decrease of capital rationing causes an increase in net present worth and the number of investments but a decrease in the profitability per year. Another important implication of the study is that the ranking criteria performs better under lower uncertainty than the higher uncertainty.