1. Alternative Selection Construction Engineering 221 Economic Analysis

2. Alternative Selection • Methods for comparing alternatives: • Present worth method- best suited for: • Same function • Mutually exclusive • Equal lives • Creating a rank order of values • Rules are probably not as rigid as the book states

3. Alternative Selection • Methods for selections • Capitalized cost • Similar to present worth • Use for “infinitely lived” assets • Discount actors approach i when n is large • Used for large engineering projects • Compare maintenance costs of highways, dams, etc

4. Alternative Selection • Methods for selection • Annual cost method • Similar purpose • Unequal lives • Infinite renewal • Can generate a desirability ranking • Also called capital recovery method • Used in value engineering • Coverts all costs to annualized amount (EUAC)

5. Alternative Selection • Method for selection • Benefit-cost ratio • When costs and benefits accrue to different groups • NPV of all benefits/NPV of all costs regardless of who pays or receives • Can be difficult to assign costs and benefits • Must have ratio greater than 1.0 to justify project • Not generally used to rank alternatives (although it can be) • Used primarily in transportation planning

6. Alternative Selection • Methods of selection • Rate of Return Method • MARR is a standard or constraint • Compare actual ROR to MARR • Used to narrow number of alternatives tot hose exceeding a pre-set standard return level