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• MUTUALLY EXCLUSIVE - only one of the viable projects can be selected by the economic analysis. Each viable project is an alternative
• INDEPENDENT - More than one viable project may be selected by the economic analysis.
• ANNUAL COST METHOD - To apply this method, the annual cost of the alternatives including interest on investment is determined. The alternative with the least annual cost is chosen. This pattern like the rate of return on additional investment pattern, applies only to alternatives which has a uniform cost data for each year and a single investment of capital at the beginning of the first year of the project life
• EQUIVALENT UNIFORM ANNUAL COST METHOD - In this method, all cash flows (irregular or uniform) must be converted to an equivalent uniform annual cost, that is a year-end amount which is the same each year. The alternative with the least equivalent uniform annual cost method is preferred. When the EUAC method is used, the equivalent uniform annual cost of the alternatives must be calculated for one life cycle only. This method is flexible and can be used for any type of alternative selection problems. The method is a modification of the annual cost pattern
• THE PRESENT WORTH COST METHOD - In comparing alternatives by this method, determine the present worth of the net cash outflows for each alternative for the same period of time. The alternative with the least present worth of cost is selected. To have the same period of time, use the least common multiple of their periods
• The capitalized cost method - is a variation of the present worth cost pattern. This method is used for alternatives having long lives. To use the method, determine the capitalized cost of all the alternatives and choose that one with the least capitalized cost
• PAYBACK (PAYOUT) PERIOD METHOD - To use this method, the payback period of each alternative is computed. The alternatives with the shortest payback period is adopted. This method is seldom used
• Depreciation - is the decrease in the value of physical property with the passage of time and use.
• depreciation - is an accounting concept that establishes an annual deduction against beforetax income such that the effects of time and use on an asset’s value can be reflected in a firm’s financial statement
• Value - is the present worth of all future profits that are to be received through ownership of a particular property.
• The market value of a property - is the amount which a willing buyer will pay to a willing seller for the property where each has equal advantage and is under no compulsion to buy or sel
• The utility or use value of a property - is what the property is worth to the owner as an operating unit
• Fair value - is the value which is usually determined by a disinterested third party in order to establish a price that is fair to both seller and buyer
• Book value, sometimes called depreciated book value, - is the worth of a property as shown on the accounting records of an enterprise
• Salvage or resale value - is the price that can be obtained from the sale of the property after it has been used
• Scrap Value - is the amount the property would sell for if disposed off as junk
• physical – due to lessening of the physical ability of a property to produce results. Its common causes are wear and deterioration.
• functional- due to the lessening in the demand for the function which the property was designed to render. Its common causes are inadequacy, changes in styles, population centers shift, saturation of markets or more efficient machines are produced
• Depreciation due to changes in price levels - almost impossible to predict and therefore is not considered in economy studies
• Depletion - refers to the decrease in the value of a property due to the gradual extraction of its contents
• Physical Life of a property - is the length of time during which it is capable of performing the function for which it was designed and manufactured
• Economic Life - is the length of time during which the property may be operated at a profit
• DECLINING BALANCE METHOD - sometimes called the constant percentage method or the Matheson Formula, it is assumed that the annual cost of depreciation is a fixed percentage of the salvage value at the beginning of the year.
• DOUBLE DECLINING BALANCE METHOD - This method is very similar to the declining balance method except that the rate of depreciation k is replace by 2/L
• THE SERVICE-OUTPUT METHOD - This method assumes that the total depreciation that has taken place is directly proportional to the quantity of output of the property up to that time. This method has the advantage of making the unit cost of depreciation constant and giving low depreciation expense during periods of low production.
• Gross Income (GI) – total income realized from all revenueproducing sources, including items such as the sales of assets, royalties, license fees, etc
• Net Profit after taxes (NPAT) – amount remaining each year when income taxes are subtracted from taxable income.
• Cash flow after taxes (CFAT) is a measure of financial performance that shows a company's ability to generate cash flow through its operations. It is calculated by adding back non-cash charges such as amortization, depreciation, restructuring costs, and impairment to net income. CFAT is also known as after tax cash flow
• CFAT after taxes is a measure of cash flow that takes into account the impact of taxes on profits. This measure is used to determine the cash flow of an investment or project undertaken by a corporation.
• Physical Impairment - the existing asset is completely or partially worn out and will no longer function satisfactorily without extensive repairs.
• Inadequacy - The existing asset does not have sufficient capacity to meet the present demands that are placed n it
• Obsolescence - This may be caused either by a lessening in the demand for the service rendered by the asset or the availability of more efficient assets which will operate with lower out-of-pocket costs
• Rental or lease possibilities - it is possible to rent identical or comparable asset or property, thus freeing capital for other and more profitable use
• Discount on a negotiable paper is the difference between the present worth (the amount received for the paper in cash) and the worth of the paper at some time in the future ( the face value of the paper or principal). Discount is interest paid in advanced
• Inflation is an increase in the amount of money necessary to obtain the same amount of product or service before the inflated price was present.
• Deflation is the opposite of inflation in that when deflation is present, the purchasing power of the monetary unit is greater in the future than in the present.
• REAL OR INFLATION-FREE INTEREST RATE, 𝑖 – the rate at which interest is earned when the effect of changes in the value of currency (inflation) have been removed.
• INLFATION-ADJUSTED INTEREST RATE 𝑖𝑓- the interest rate that has been adjusted to take inflation into account (market interest rate)
• INFLATION RATE, 𝑓- a measure of the rate of change in the value of currency
• Decision under risk are decisions in which the analyst models the decision problems in terms of assumed possible future outcomes, or scenarios, whose probabilities of occurrence can be estimated.