Construction Engineering 221Economic Analysis

Alternative SelectionMethods for comparing alternatives:Present worth method- best suited for:Same functionMutually exclusiveEqual livesCreating a rank order of valuesRules are probably not as rigid as the book states

Alternative SelectionMethods for selectionsCapitalized costSimilar to present worthUse for infinitely lived assetsDiscount actors approach i when n is largeUsed for large engineering projectsCompare maintenance costs of highways, dams, etc

Alternative SelectionMethods for selectionAnnual cost methodSimilar purposeUnequal livesInfinite renewalCan generate a desirability rankingAlso called capital recovery methodUsed in value engineeringCoverts all costs to annualized amount (EUAC)

Alternative SelectionMethod for selectionBenefit-cost ratioWhen costs and benefits accrue to different groupsNPV of all benefits/NPV of all costs regardless of who pays or receivesCan be difficult to assign costs and benefitsMust have ratio greater than 1.0 to justify projectNot generally used to rank alternatives (although it can be)Used primarily in transportation planning

Alternative SelectionMethods of selectionRate of Return MethodMARR is a standard or constraintCompare actual ROR to MARRUsed to narrow number of alternatives tot hose exceeding a pre-set standard return level