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This note aims to clarify the conditions under which different capital budgeting criteria yield equivalent rankings of proposed projects.

A Note on the Equivalence of Certain Capital Budgeting Criteria.

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This note explores the equivalence of various capital budgeting criteria for project evaluation, indicating implications for decision-making.

This note aims to clarify the conditions under which different capital budgeting criteria yield equivalent rankings of proposed projects.
Evaluated capital projects at the firm's cost of capital.
Compared present value V to initial cost C using various criteria.
Ranked projects based on (V-C), (V-C)/C, and internal rate of return i.
Show that (V-C)/C ranking is equivalent to profitability index V/C.
Outline conditions for when project rankings based on (V-C) correspond with (V-C)/C.
Demonstrate cases where (V-C)/C and (V-C) rankings do not align.

William Beranek (1964) studied this question.

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This note explores the equivalence of various capital budgeting criteria for project evaluation, indicating implications for decision-making.