Chapter 8: Choosing the Best Alternative

What are the elements in comparing mutually exclusive alternatives?

1. Be sure all alternatives are identified 2. Construct an NAP or EUAW or EUAC graph showing all alternatives plotted on the same axes 3. Examine the line of best values and determine which alternatives create it over what range 4. Determine the change over points and delta IRR of the incremental investment 5. Create a choice table

Mutually Exclusive

at most, one alternative out of a group of alternative may be chosen

Incremental Analysis Using Graphical Comparison

illustrates how graphical methods can be used to choose the best alternative when there are mutually exclusive alternatives

Incremental Challenger-Defender Comparisons

starts with lowest initial investment and compares two-alternatives at a time

Contingent

the choice of a particular alternative is conditional on the choice of one or more of the other alternatives

Independent

the choice of any one alternative is independent of the choice of any other alternative in the group of alternatives (any # of alternatives may be chosed as long as sufficient capital is available)