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Corporate Investment Decisions by Michael Pogue

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Chapter 2

The Appraisal Process

The finance literature tends to view the decision maker as more of a technician than an entrepreneur, with the assumption being that the application of theoretically correct appraisal techniques will result in an optimal choice of projects and, subsequently, maximization of shareholder value. Implicit in this approach is that investment ideas simply emerge; free information is readily available; projects are considered in isolation, devoid of further interactions; and qualitative factors are relatively unimportant.

In reality, managers operate in a very different environment, facing relatively unstructured, complex decisions with ambiguity and irreversibility typically present. Clearly, in such circumstances we ...

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