Selection from Independent Projects Under Budget Limitation
Selection from Independent Projects Under Budget Limitation
In most of the previous economic comparisons, the alternatives have been
mutually exclusive; only one could be selected. If the projects are not mutually
exclusive, they are categorized as independent of each other, as discussed
at the beginning of Chapter 5. Now we learn techniques to select
from several independent projects. It is possible to select any number of
projects from none (do nothing) to all viable projects.
There is virtually always some upper limit on the amount of capital available
for investment in new projects. This limit is considered as each independent
project is economically evaluated. The technique applied is called
the capital budgeting method, also referred to as capital rationing. It determines
the economically best rationing of initial investment capital among
independent projects. The capital budgeting method is an application of
the present worth method.
The case study takes a look at the project selection dilemmas of an engineering
professional society striving to serve its membership with a limited
budget in a technologically changing world.
