Abstract The past several years have seen a substantial increase in the application of the concept of present value in making capital investment decisions. The concept itself is by no means new. Its use in the financial field dates back several centuries, and it is the basis for such common financial techniques as the determination of bond yields, mortgage amortization schedules, and so forth. Moreover, applications to capital replacement situations have been discussed in engineering literature. The past reluctance of businessmen to use the present value concept in allocating capital resources may have had a variety of causes. Many may have been discouraged by the apparent complexity of the mathematics involved. Others no doubt felt that the added refinement of technique was not justified in view of the rough estimates to which the techniques are applied. While it is true that the present value concept involves mathematics above the level of simple arithmetic and hence more involved than that used by the traditional techniques, it is not necessary to deal with these complexities.
Charles Christenson (Sat,) studied this question.