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Alternatives
Determining Study
Period
Engineering Economy, 15th Edition
By William G. Sullivan, Elin wicks,and C. Patrick Koelling
Determining the study period.
✘A study period (or ✘MEAs can have ✘The equal life case
planning horizon) is equal lives (in which is straightforward,
the time period over case the study period and was used in the
which MEAs are used is these equal previous two
compared, and it must lives), or they can examples.
be appropriate for have unequal lives,
the decision situation. and at least one does
not match the study
period.
A B C D
Life (years) 10 10 10 10
Using Rates Of
Return
Engineering Economy, 15th Edition
By William G. Sullivan, Elin wicks,and C. Patrick Koelling
Using rates of return is another way to
compare alternatives.
• Subtract cash flows of the lower ranked alternative from the higher
ranked.
• Initial cost - are those that are incurred during the design and
construction process.
• Internal rate of return (IRR) - is the interest rate at which the net
present value of all the cash flows (both positive and negative) from a
project or investment equal zero.
Alternative B is preferred to A.
Engineering Economy, 15th Edition
By William G. Sullivan, Elin wicks,and C. Patrick Koelling
Comparing MEAs with unequal lives.w
○Repeat part of the useful life ○Replace with another asset, with
and use an estimated market possibly different cash flows,
value to truncate after the study period