Optimal project selection when borrowing and lending rates differ

Authors:
M. Padberg;M. J. Wilczak
Affiliations:
MEC 8-68, New York University 44 West 4th St., New York, NY 10012, U.S.A.;Chase Manhattan Bank, New York, NY, U.S.A.
Venue:
Mathematical and Computer Modelling: An International Journal
Year:
1999

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Abstract

Mathematical programming is employed to obtain an optimal decision rule for project approval in capital budgeting in a nonperfect capital market. We use the framework due to Martin Weingartner to formulate the decision problem in a deterministic setting and derive the optimal rules for the acceptance/rejection of a single project explicitly in the two cases where the borrowing/lending rates for capital are constant and time-dependent, respectively.