Home  Journals  Economic Analysis: Theory and Practice  30(429) - 2015 August

A matrix-vector method of assessing the effectiveness of investment decisions

Vol. 14, Iss. 30, AUGUST 2015

Article PDF Version

Received: 22 April 2015

Accepted: 5 May 2015

Available online: 31 August 2015

Subject Heading: INVESTMENT ANALYSIS

JEL Classification: 

Pages: 34-42

Importance The analysis of investment projects for the purpose of their selection is the core element in preparing investment solutions. Its relevance increases when it is necessary to select several dozens of the most efficient investment projects out of several hundreds.
     Objectives The objective is to develop a method to evaluate the efficiency of investment solutions.
     Methods I used the comparative analysis to determine the possibilities of using the following criteria: NPV (Net Present Value), IRR (Internal Rate of Return), DPP (Discounted Payback Period), PI (Profitability Index) when evaluating investment solutions' efficiency.
     Results The article describes the disadvantages of the indices, both individually and collectively.
     I have offered a complex multi-criteria method to evaluate the efficiency of investment solutions. The analysis shows that each of the mentioned criteria is necessary but insufficient to make a decision when selecting out of a batch of projects. To enhance the reliability of evaluation of real investment projects' efficiency, all the criteria should be considered as a whole.
     Conclusions and Relevance I conclude that the offered matrix-and-vector models enable to increase reliability and to use the best objective method for evaluating the efficiency of investment solutions.

Keywords: investment projects, evaluation, assessment, methods, efficiency, criteria, model, analysis

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