Three standard investment criteria, benefit-cost ratio (B/C), internal rate of return (IRR), and present net worth (PNW), are commonly used for economic evaluation of range improvements. Unfortunately, as commonly calculated, these three criteria often yield contradictory selections when choosing between two or more possible range improvement projects. Disagreements among the three criteria are caused by differences in project lives and initial investments (size), along with failure to recognize explicitly the rate of return foregone on alternative investments. This paper demonstrates that when projects are normalized for non-uniform lives and differences in size, the three investment criteria yield identical project selections. Correct project selection by B/C requires normalization for non-uniform size, while the IRR calculations must be normalized for differences in both project size and expected life. The following procedure is recommended for selecting an optimum combination of projects from among numerous alternatives: (1) Rank projects by B/C. (2) Select best projects first until available capital is exhausted. (3) Perform PNW side calculations to verify the accuracy of the selected project combination. This material was digitized as part of a cooperative project between the Society for Range Management and the University of Arizona Libraries. The Journal of Range Management archives are made available by the Society for Range Management and the University of Arizona Libraries. Contact lbry-journals@email.arizona.edu for further information. Migrated from OJS platform August 2020
Scholarly peer-reviewed articles published by the Society for Range Management. Access articles on a rolling-window basis from vol. 1, 1948 up to 5 years from the current year. Formerly Journal of Range Management (JRM). More recent content is available by subscription from SRM.