Allocating Capital Within a Firm

Abstract

A firm must direct its resources where it can capitalize on market opportunities that offer the maximum long-term returns for its shareholders. The officers of a corporation and the board of directors cannot possibly evaluate the merits of each project, which would require a myriad of data from the business case for each project. By and large, the current literature is concerned less with managerial issues associated with resource allocation or capital budgeting at the firm level than with project oriented decision about resource allocation/capital budgeting. This article is an attempt to define in practical terms the issues of resource allocation and specifically capital budgeting at the business unit and the firm level.