Energy Project Financing : Resources and Strategies for Success

Appendix A 237

Table A-7. The decision alternatives from four projects

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Accept A only

Accept B only

Accept C only

Accept D only

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Accept A and B only

Accept A and C only

Accept A and D only

Accept B and C only

Accept B and D only

Accept C and D only

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Accept A, B, and C only

Accept A, B, and D only

Accept A, C, and D only

Accept B, C, and D only

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Accept A, B, C, and D

(frequently called the do everything alternative)

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Accept none

(frequently called the do nothing or null alternative)

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The first steps in the selection process are to specify the cash flow
amounts and cash flow timings for each project in the potential project
set. Additionally, a value of MARR to be used in the analysis must be
specified. These issues have been addressed in previous sections, so
further discussion will be omitted here. The next step is to form the set
of all possible decision alternatives from the projects. A single decision
alternative is a collection of zero, one, or more projects which could be
accepted (all others not specified are to be rejected). As an illustration,
the possible decision alternatives for the set of projects illustrated in
Figure A-9 are listed in Table A-7. As a general rule, there will be 2n
possible decision alternatives generated from a set of n projects. Thus,
for the projects of Figure A-9, there are 2^4 = 16 possible decision alterna-
tives. Since this set represents all possible decisions that could be made,