Rate of return techniques in capital budgeting;

              Rate of return
techniques in
capital
budgeting
H. Justin Davidson lives in Chicago and directs the firm's
national statistical sampling program. A graduate of the
Carnegie Graduate School of Industrial Administration,
he received his M.S. degree in mathematical economics in
1955. After his graduation he was associated with the
Operations Evaluation Group (Navy-Massachusetts Insti­tute
of Technology) and the Arabian American Oil Com­pany.
He joined TRB&S in 1957.
by H.Justin Davidson
I H E USE OF RATE OF RETURN TECHNIQUES in the capital
budgeting process is comparatively old. The theory un­derlying
these techniques was developed in the 1930's.1
Practical interest in rate of return techniques and their
acceptance by business stem largely, however, from the
work of Joel Dean in the early fifties.2 Following Dean's
pioneering popularization, the late fifties saw such down-to-
earth journals as the Harvard Business Review and the
NAA Bulletin espousing the virtues of rate of return
techniques in the capital budgeting process.
Capital budgeting in any company involves the alloca­tion
of usually scarce, and certainly limited, funds to
competing investment alternatives or projects. Should
1 Cf. E. L. Grant, Principles of Engineering Economy, New
York, 1930.
2 Cf Joel Dean, Capital Budgeting, New York, 1951.
JUNE, 1963 13