Appendix A 235posed projects, (2) there are no mutually exclusive projects, and (3) there
are no contingent projects.
A funds restriction creates dependency, since before deciding on a
project being evaluated, the evaluator would have to know what deci-
sions had been made on other projects to determine whether sufficient
funds were available to undertake the current project. Mutual exclusion
creates dependency, since acceptance of one of the mutually exclusive
projects precludes acceptance of the others. Contingency creates depen-
dence, since prior to accepting a project, all projects on which it is contin-
gent must be accepted.
If none of the above dependency situations are present and the proj-
ects are otherwise independent, then the evaluation of the set of projects
is done by evaluating each individual project in turn and accepting the set
of projects which were individually judged acceptable. This accept or re-
ject judgment can be made using either the PW, AW, IRR, or SIR measure
of worth. The unconstrained decision rules for each or these measures of
worth are restated below for convenience:
Unconstrained PW Decision Rule: If PW ≥0, then the pr oject is attractive.
Unconstrained AW Decision Rule: If AW ≥0, then the project is attractive.
Unconstrained IRR Decision Rule: If IRR is unique and IRR ≥MARR,
then the project is attractive.
Unconstrained SIR Decision Rule: If SIR ≥1, then the project is attractive.
Example 17
Consider the set of four investment projects whose cash flow dia-
grams are illustrated in Figure A-9. If MARR is 12%/yr and the analysis is
unconstrained, which projects should be accepted?
Using present worth as the measure of worth:
PWA = –1000+600*(P|A,12%,4) = –1000+600(3.0373) = $822.38 ⇒ Ac-
cept A
PWB = –1300+800*(P|A,12%,4) = –1300+800(3.0373) = $1129.88 ⇒ Ac-
cept B