Engineering Economic Analysis

528 RATIONING CAPITAL AMONG COMPETING PROJECTS

The first trial withp=0.10 selects Alternatives1B, 2A,and3Awith a total cost of $300,000.

This still is greater than the $250,000 capital budget. Another trial is needed withalarger value

ofp.Selectp=0.15 and recompute.

p=O.1S'

NPW

(thousands)

[NPW - p(PW of cost)]

(thousands)

Alternative with Largest Positive

[NPW- p(PWof cost»

(thousands)

Alt. Cost

$60.04

66.06

67.40

o

$45.04

43.56

37.40

o

lA $100

9.57

o

2.07 50

o

2A

100

$250

-- - Thesecond trial, witllp=0.15, points to AlternatjveslA,2A, and3Afor a total cost Qf$250,000.

-nus ~qmi1s~the"dipital"budget,:::hence'=is.the;desired'wt!()f""Prejeets~ == ~ -~ ..

~ -J!!!~ \~ "" 4" __.,_~_ J2'_.

J

p=O.10

Alternative with Alternative with Largest

Largest Positive NPW Positive [NPW-

(thousands) [NPW- p(PWof cost)] (thousands)

Project Cost NPW p(PWof cost)]

Proposals- (thousands) (thousands) Alt. Cost (thousands) Alt. Cost

Proposal 1

Alt.A $100 $60.04 $50.04

Alt. B 150 66.06 51.06 IB $150

Alt.C 200 67.40 1C $200 47.40

Alt. D 0 0 0

Proposal 2

Alt.A 50 9.57. 2A 50 4.57 2A 50

Alt.B^000

Proposal 3

Alt.A 100 36.99 26.99 3A 100.

Alt.B 150 38.21 3B (^150) 23.21
Alt.C (^00) -^0
$400 $300
Project Cost

Proposals- (thousands)

Proposal 1

Alt.A $100

Alt.B 150

Alt. C 200

Alt. D 0

Proposal 2

Alt.A^50

Alt.B 0

Proposal 3

Alt.A 100

Alt.B^150

Alt.C^0

36.99 21.99 3A

38.21 15.71

:^0 -.^0

• :; i8i::i:::: :; :: i!!: ;:;; =iii== ;;;:.