Lecture cash flow evaluation new

Engineering Economics - EIT Review Cash Flow Evaluation Hugh Miller Colorado School of Mines Mining Engineering Department Fall 2008

Introduction ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Present Value ,[object Object],T = 0 +/- Cash Flows PV

Net Present Value (NPV) ,[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Present Value Example

Present Value Example Solution ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Future Value ,[object Object],T = 0 +/- Cash Flows FV

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Future Value Example

Future Value Example Solution ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

PV/FV Example ,[object Object],[object Object],[object Object],[object Object],[object Object]

Annual Analysis Example ,[object Object]

Annual Example Solution ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Benefit/Cost Ratio ,[object Object]

B/C Ratio Example ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Payback Period ,[object Object],[object Object],[object Object],[object Object]

Example ,[object Object],[object Object],[object Object],[object Object],[object Object],a b c) 0.78 = 10,500/13,500 d) 3 + 0.78

Effect of Pre-production Period ,[object Object],[object Object]

Effect of Pre-production Period ,[object Object],[object Object],[object Object],[object Object]

Advantages ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Engineering Economics EIT Review IRR & Discount Rates

Investment Rate of Return ,[object Object],[object Object],[object Object]

Internal Rate of Return ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Example ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

IRR using Excel ,[object Object]

Analysis ,[object Object],[object Object]

Analysis ,[object Object],[object Object],[object Object]

Multiple Roots Case ,[object Object],[object Object],[object Object],[object Object]

Multiple Roots Case ,[object Object],[object Object]

Multiple Roots Case ,[object Object],[object Object],[object Object]

Selecting a Discount Rate ,[object Object],[object Object],[object Object]

Example ,[object Object],+1000 +800 +600 +750 -500 -500 Cash Flow Yr 5 Cash Flow Yr 4 Cash Flow Yr 3 Cash Flow Yr 2 Cash Flow Yr 1 Cash Flow Yr 0 NPV ROR 0 47.82% IRR 739 20% 981 15% 1,283 10% 1,581 6% 1,941 2%

What is in the Discount Rate? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Financial Cost of Capital ,[object Object]

Marginal Weighted Average Cost of Capital ,[object Object]

Hurdle Rate ,[object Object],[object Object]

Opportunity Cost of Capital The opportunity cost of capital is the most common method of establishing the investor’s minimum rate of return. This is based upon the expected returns that the company will generate in the next 1 to 15 years. It is the average return that investors expect to make over the next few years expressed as a compound interest.

Lecture cash flow evaluation new

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Lecture cash flow evaluation new