Question 9.5: Which project(s) in Table 9-5 should be approved, if the bud......

Schaum’s Outline of Engineering Economics [1215911]

Which project(s) in Table 9-5 should be approved, if the budget is $150 000 and the MARR is 15%?

Table 9-5
Project	Investment	i*
A	$100000	20%
B	50000	20%
C	50000	20%
D	50000	20%
E	150000	20%

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This is an instance of financial interdependence. Because of the $150 000 budget, selecting project A and either B, C, or D precludes selecting any others; selecting E precludes selecting any others; and selecting B and C and D precludes selecting any others. Thus, there are five alternatives (investment portfolios), each epresenting a total investment of $150 000 and each with an ROR of 20%. The choice among them must be made on the basis of the intrinsic characteristics of the projects, the need for a diversified portfolio, and other irreducible factors.

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