REPLY1
| Published date | 01 February 1965 |
| Author | M. Dryden |
| DOI | http://doi.org/10.1111/j.1467-9485.1965.tb00752.x |
| Date | 01 February 1965 |
REPLY
*
M.
DRYDEN
MY objectives in writing the article in question were to give the
reader some idea of relatively recent developments relating to a
number of topics
in
the field of capital budgeting. This required me
to compress a great deal of material into a small space. This practice
is fraught with danger for one is always confronted with difficult
choices of what to include and what to exclude and-more importantly
in this context-to endeavour to present authors’ views succinctly yet
accurately. In re-reading my article
I
must confess that
I
have not
altogether avoided these dangers. But the points of weakness
I
have
found are not those claimed by Professor Merrett.
Professor Merrett claims that
I
have misrepresented the views
expressed in his (and Allen Sykes) book. The validity
of
this claim
can be tested by considering page
240
of
my
article along with his
Comment. The quotations
I
made would appear to give the essence
of
of his views, namely, that he is a proponent of the internal rate
method for reasons that both he and I state.’ Since my main aim
at this point in the article was to direct readers to the proponents of
the various approaches
I
submit that it was quite appropriate to assert
that
‘
Merrett and Sykes are typical examples of those who advocate
the use of the internal-rate-of-return
’
because this is the method they
recommend for the ‘vast majority of simple capital budgeting
decisions
,’
I
trust that Professor Merrett will forgive me for not
indicating the details of how he and his co-author proposed to
evaluate projects in the minority
of
cases and for not making it
more explicit that the internal rate is not the only criterion they
recommend in evaluating projects.
Professor Merrett attributes views to me which
I
do not hold. My
reading
of
the literature
on
this issue suggests to me that the strongest
case lies
on
the side of the present value method. The superiority
I
allude to, however, is relative not absolute.
I
had hoped that this was
1
To
conserve space references to books and articles cited in my original
article
(Scorrish
Journal
of
Political
Economy,
XI,
pp.
235-59)
are made in
this Reply by simply using the number of the footnote in which the reference
originally appeared.
2
I
ignored the
risk
argument for the simple reason that
I
had divided
my paper broadly into several parts, the part in queshon being concerned
with
the certainty case. But in this connection it is interesting to note Professor
Merrett’s defence
of
the internal rate on account of its being a percentage.
For
a refutation of this apparently useful feature see my reference to Hirsh-
leifer.
119
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