Textbook Notes (368,316)
Canada (161,798)
Economics (741)
ECON 4B03 (1)
Chapter 6

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Walid M Mohammed

All about alternatives ! o Can be compared by using PW, FW, AW or calculating the MARR - For investment alternatives, the PW of all cashflows must be POSITIVE at the MARR to be attractive. o Select the alternative with the largest PW! - For cost alternatives, the PW of all cash flows will be negative o Select the alternative with the least negative PW! MAX REVENUE MIMINAL COST Mutually Exclusive Alternatives (MEA)– selection of one alternative that excludes the choice of any other one. The Study Period - A study period is a time over which MEA’s are compared o Must consider shorter lived or longer lived alternative, company policy o How long the asset will be useful for - Comparing Alternatives by using Rate of Return - MEAs can have equal lives, or they can have (ROR) unequal lives where at least one MEA does not o ROR >= MARR match the study period o Lower investment is better - Handling unequal lives o Pick alternative that requires the largest o Repeatability investment of capital as long as it is  The study period either goes justified by benefits that earn at least as on forever of is equal to a much as the MARR common multiple of the lives of - Do not compare IRR of MEAs, only compare the the MEAs
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