Interdepences Among Projects

Fulbright Economics Teaching Program 2005-2006 The Appraisal of development expenditures Cao Hào Thi 1 Lecture 4 1 CAO HAØO THI INTERDEPENCES AMONG PROJECTS 2 INTERDEPENDENCES AMONG PROJECTS z Projects combinations z Complementarity and substitutability among projects z Replacement of asset Fulbright Economics Teaching Program 2005-2006 The Appraisal of development expenditures Cao Hào Thi 2 Lecture 4 3 PROJECTS COMBINATIONS z n projects: A, B and C z Evaluating 2n combinations ª A ª B ª C ª A,B ª A,C ª B,C ª A,B,C ª Alternative 0 4 COMPLIMENTARITY & SUBSTITUTABILITY 1 + 1 = ? Fulbright Economics Teaching Program 2005-2006 The Appraisal of development expenditures Cao Hào Thi 3 Lecture 4 5 COMPLIMENTARITY & SUBSTITUTABILITY, BENEFITS z Independent PVBI + PVBII = PVBI + ii z Substitute PVBI + PVBII > PVBI + ii z Complement PVBI + PVBII < PVBI + ii 6 COMPLIMENTARITY & SUBSTITUTABILITY, COSTS z Independent PVCI + PVCII = PVCI + ii z Substitute PVCI + PVCII < PVCI + ii z Complement PVCI + PVCII > PVCI + ii Fulbright Economics Teaching Program 2005-2006 The Appraisal of development expenditures Cao Hào Thi 4 Lecture 4 7 COMPLIMENTARITY & SUBSTITUTABILITY Benefits Costs Independent Not interested Complement Combine ? Substitute Do not combine ? Complement SubstituteIndependent Combine Combine Do not combine Do not combine 8 ASSET REPLACEMENT z Keep old asset, do not buy new z Sell old asset, purchase new z Keep old asset, additionally purchase new