The impact of illiquidity and uncertainty on the multiperiod project investment decision process
Each year approximately 16 out of 17 new business projects fail. If a thorough feasibility analysis had been made perhaps many of these failures could have been avoided. American managers have been criticized for paying too much attention to short-term measures of performance such as quarterly financial data and not enough attention to long-term basic elements of industrial strength such as market share and research and development favored by managers in Europe and Japan. Some analysts believe that the discounted cash flow (DCF) techniques used by American managers to evaluate long-term investment projects have inherent weaknesses that make them inappropriate for evaluating investment projects, especially those whose payoffs are expected several in the future. In every economy where money has a time value and cash flows are generated in different time periods, discounting provides a rational and conceptually sound procedure for evaluating investment projects.