Title: An adoption decision model of emerging capital budgeting methodologies

Authors: Suvankar Ghosh, Marvin D. Troutt, Jay Weinroth, Xiaolin Li

Addresses: Department of Management Systems, College of Business Administration, Kent State University, P.O. Box 5190, Kent, OH 44242, USA. ' Department of Management Systems, College of Business Administration, Kent State University, P.O. Box 5190, Kent, OH 44242, USA. ' Department of Management Systems, College of Business Administration, Kent State University, P.O. Box 5190, Kent, OH 44242, USA. ' Department of e-Business and Technology Management, Towson University, 8000 York Rd, Towson, MD 21252, USA

Abstract: Two emerging methodologies for capital budgeting are Real Options (RO) and Economic Value Added (EVA). Embracing EVA or RO is not a small undertaking for a firm. Given the extent of the change involved, we recommend that firm adopt these new approaches sequentially. We develop a Methodology Adoption Decision Model (MADM) for determining which methodology a firm should adopt first. The MADM focuses on the theoretical soundness and the practical applicability of the methodology. We conclude that EVA is more likely to be embraced by the industry than RO. We therefore recommend that management first focus on EVA adoption.

Keywords: decision analysis; capital budgeting; real options; EVA; economic value added.

DOI: 10.1504/IJOR.2009.025201

International Journal of Operational Research, 2009 Vol.5 No.3, pp.349 - 362

Published online: 16 May 2009 *

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