Decision-Making for Capital Budgeting with Using Electre and Copras Methods of Multi-Criteria

Abstract

The study aims to develop a decision model for capital budgeting decisions with an application of the ELECTRE coined with the COPRAS methods of the MCDM in order to choose the best investment alternative. It presents a financial model for the evaluation and comparison of long-term investment decision making. The selection of one or more investment projects from the set of possible alternatives is an important and difficult task for decision makers. A hypothetical case study is presented for the selection of a machine with three alternatives available. The data was analyzed with the help of five capital budgeting techniques namely the Accounting Rate of Return (ARR), payback period (PB), Net Present Value (NAV), Profitability Index (PI) and Internal Rate of Return (IRR) with the application of the ELECTRE and the COPRAS methods of the Multi Criteria Decision Making (MCDM). After analysis and testing, it is revealed that both the ELECTRE and the COPRAS methods of the MCDM, have given identical rankings for selecting the various investment alternatives, thereby offering a more credible and reliable approach to decision-making. The findings of the study imply that the decision makers should adopt capital budgeting techniques along with the MCDM methods to improve investment decisions. The study is significant for the use of capital budgeting techniques coined with the MCDM methods to simplify as well as improve the investment decision-making from Indian perspective. It provides valuable insights to multiple stakeholders in this regard.