Many investment projects have a sequential nature and maximum construction rate. Especially, the rate at which construction proceeds is usually flexible and can be adjusted during the construction. Further, the arrival of new information can reduce the uncertainty of projects resulting from learning. Traditional discounted cash flow criteria, especially based on a single discount rate, ignore this flexibility and understate the value of the project. This paper derives the optimal investment decision rules and values such investment projects using contingent claims analysis. We will show how time to build and reduction of uncertainty affect on the investment decision.
We examine a one-machine scheduling problem to minimize the sum of weighted completion times subject to deadline constraints. Since this problem was proved to be NP-complete, most current researches have been focused on dominant lower bounds and effective precedence conditions that can be used in the framework of a branch and bound approach.
