Chapter 3-2:

Comparison and Selection Among

Alternatives

The objective of chapter is to evaluate correctly capital

investment alternatives when the time value of money
is a key influence.

• In this chapter we examine feasible design alternatives.

• The decisions considered are those selecting from
among a set of mutually exclusive alternatives.

01/16/21 Dr.Ahmad Alfraihat 1

 Mutually exclusive alternatives (MEAs)

• We examine these on the basis of economic

considerations alone.
• The alternatives may have different initial investments
and their annual revenues and costs may vary.
• The basic methods from chapter 5 provide the basis for
economic comparison of the alternatives.

01/16/21 Dr.Ahmad Alfraihat 2

 Apply this rule, based on Principle 2 from
Chapter 1.

The alternative that requires the minimum investment of

capital and produces satisfactory functional results will
be chosen unless the incremental capital associated with
an alternative having a larger investment can be
justified with respect to its incremental benefits. This
alternative is the base alternative.

01/16/21 Dr.Ahmad Alfraihat 3

 For alternatives that have a larger investment
than the base…

If the extra benefits obtained by investing additional

capital are better than those that could be obtained
from investment of the same capital elsewhere in the
company at the MARR, the investment should be
made.

01/16/21 Dr.Ahmad Alfraihat 4

01/16/21 Dr.Ahmad Alfraihat 5
01/16/21 Dr.Ahmad Alfraihat 6
01/16/21 Dr.Ahmad Alfraihat 7
01/16/21 Dr.Ahmad Alfraihat 8
01/16/21 Dr.Ahmad Alfraihat 9
01/16/21 Dr.Ahmad Alfraihat 10
01/16/21 Dr.Ahmad Alfraihat 11
01/16/21 Dr.Ahmad Alfraihat 12
01/16/21 Dr.Ahmad Alfraihat 13
01/16/21 Dr.Ahmad Alfraihat 14
01/16/21 Dr.Ahmad Alfraihat 15
01/16/21 Dr.Ahmad Alfraihat 16
01/16/21 Dr.Ahmad Alfraihat 17
01/16/21 Dr.Ahmad Alfraihat 18
01/16/21 Dr.Ahmad Alfraihat 19
01/16/21 Dr.Ahmad Alfraihat 20
01/16/21 Dr.Ahmad Alfraihat 21
01/16/21 Dr.Ahmad Alfraihat 22
01/16/21 Dr.Ahmad Alfraihat 23
01/16/21 Dr.Ahmad Alfraihat 24
01/16/21 Dr.Ahmad Alfraihat 25
01/16/21 Dr.Ahmad Alfraihat 26
01/16/21 Dr.Ahmad Alfraihat 27
01/16/21 Dr.Ahmad Alfraihat 28
01/16/21 Dr.Ahmad Alfraihat 29
01/16/21 Dr.Ahmad Alfraihat 30
01/16/21 Dr.Ahmad Alfraihat 31
01/16/21 Dr.Ahmad Alfraihat 32
01/16/21 Dr.Ahmad Alfraihat 33
01/16/21 Dr.Ahmad Alfraihat 34
01/16/21 Dr.Ahmad Alfraihat 35
01/16/21 Dr.Ahmad Alfraihat 36
01/16/21 Dr.Ahmad Alfraihat 37
01/16/21 Dr.Ahmad Alfraihat 38
01/16/21 Dr.Ahmad Alfraihat 39
01/16/21 Dr.Ahmad Alfraihat 40
01/16/21 Dr.Ahmad Alfraihat 41
01/16/21 Dr.Ahmad Alfraihat 42
01/16/21 Dr.Ahmad Alfraihat 43
01/16/21 Dr.Ahmad Alfraihat 44
 Chapter 6 HW:
Examples: 6-3, 6-7
Problems: 6-1, 6-2, 6-7, 6-15, 6-19, 6-20, 6-22, 6-26

01/16/21 Dr.Ahmad Alfraihat 45