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Fuzzy Capital Budgeting: Investment Project Evaluation and Optimization

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Fuzzy Applications in Industrial Engineering

Part of the book series: Studies in Fuzziness and Soft Computing ((STUDFUZZ,volume 201))

Abstract

Capital budgeting is based on the analysis of some financial parameters of considered investment projects. It is clear that estimation of investment efficiency, as well as any forecasting, is rather an uncertain problem. In a case of stock investment one can to some extent predict future profits using stock history and statistical methods, but only in a short time horizon. In the capital investment one usually deals with a business-plan which takes a long time — as a rule, some years — for its realization. In such cases, a description of uncertainty within a framework of traditional probability methods usually is impossible due to the absence of objective information about probabilities of future events. This is a reason for the growing for the last two decades interest in applications of interval and fuzzy methods in budgeting. In this paper a technique for fuzzy-interval evaluation of financial parameters is presented. The results of technique application in a form of fuzzy-interval and weighted non-fuzzy values for main financial parameters NPV and IRR as well as the quantitative estimation of risk of an investment are presented.Another problem is that one usually must consider a set of different local criteria based on financial parameters of investments. As its possible solution, a numerical method for optimization of future cash-flows based on the generalized project’s quality criterion in a form of compromise between local criteria of profit maximisation and financial risk minimisation is proposed.

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Author information

Authors and Affiliations

  1. Institute of Comp.& Information Sci., Technical University of Czestochowa, Dabrowskiego 73, Czestochowa, 42-200, Poland

    Pavel Sevastjanov & Ludmila Dimova

  2. Reuters Research, Inc., 3 Times Square, 17 floor, location 17-W15, New York, NY 10036, USA

    Dmitry Sevastianov

Authors
  1. Pavel Sevastjanov
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  2. Ludmila Dimova
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  3. Dmitry Sevastianov
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Editor information

Editors and Affiliations

  1. Industrial Department of Engineering Faculty Management, Istanbul Technical University, Campus Macka, Istanbul, 80680, Turkey

    Cengiz Kahraman Dr.

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© 2006 Springer

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Sevastjanov, P., Dimova, L., Sevastianov, D. (2006). Fuzzy Capital Budgeting: Investment Project Evaluation and Optimization. In: Kahraman, C. (eds) Fuzzy Applications in Industrial Engineering. Studies in Fuzziness and Soft Computing, vol 201. Springer, Berlin, Heidelberg. https://doi.org/10.1007/3-540-33517-X_7

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  • DOI: https://doi.org/10.1007/3-540-33517-X_7

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-540-33516-0

  • Online ISBN: 978-3-540-33517-7

  • eBook Packages: EngineeringEngineering (R0)

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