The Present Value Issue in a Sequential Selection Problem

ABSTRACTThis note shows that, due to the misapplication of the present value concept, the Chun and Platt (CP) formulation of a sequential selection problem, which intends to improve on the Kwan and Yuan (KY) analysis, is flawed and the decision criterion thus obtained is invalid. In the context of capital budgeting, we make necessary corrections to the CP analysis and establish a decision criterion which is more refined than the KY case. The refined decision criterion enables us to evaluate the KY analysis objectively and to refute CP's argument about its suboptimality. We also address the managerial implications of the refined decision criterion.

The Present Value Issue in a Sequential Selection Problem Journal Articles