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[object Object],[object Object],Engineering Economy Review
Main concepts ,[object Object],[object Object],[object Object],[object Object]
Suggestions for solving problems ,[object Object],[object Object],[object Object],[object Object],[object Object]
Cash flows ,[object Object],[object Object],[object Object],[object Object]
Equivalence ,[object Object],[object Object],[object Object],[object Object],[object Object]
Single Payment Compound Interest ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bank example ,[object Object],[object Object],[object Object],[object Object],[object Object]
5.47 Income from savings  ,[object Object],[object Object],[object Object],[object Object]
5.47 Capitalized cost problem ,[object Object],[object Object],[object Object],[object Object],[object Object],0 1 2 25,000 3
Key points to remember ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Comparison of alternatives ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Present/Future worth ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Tomato peeling machines ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Present cost of A 0 1 2 3 52,000 15,000 13,000 P 4 = -52000+(38,000-15,000)(P/A,12%,4)+13,000(P/F,12%,4) P 12 = P 4 + P 4 (P/F,12%,4) + P 4 (P/F,12%,8) P 12  =$53,255 52,000 52,000 15,000 15,000 5 6 7 15,000 15,000 15,000 38,000 38,000 38,000 38,000 38,000 38,000 13,000 9 10 11 15,000 15,000 15,000 13,000 12 38,000 38,000 38,000 P 4 P 4 P 4 A=38,000-15,000 i= MARR=12% n=4 F=13,000
Present cost of B 0 1 2 3 63,000 9,000 P 6 = -63000+(31,000-9,000)(P/A,12%,6)+19,000(P/F,12%,6) P 12 = P 6 + P 6 (P/F,12%,6)  P 12  =$55,846 63,000 9,000 9,000 5 6 7 9,000 9,000 9,000 31,000 31,000 31,000 31,000 9 10 11 9,000 9,000 9,000 13,000 12 9,000 31,000 19,000 31,000 31,000 31,000 31,000 31,000 4 9,000 P 6 P 6 A=31,000-9,000 i= MARR=12% n=6 F=19,000
Cash flow analysis  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Cash flow analysis ,[object Object],[object Object],[object Object],[object Object],[object Object]
Rate of return analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
7-52:  Purchase vs. Lease ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
7-52:  Purchase vs. Lease n=8 Purchase-Lease 3000 4200 PW of Benefits-PW of Costs=0 3000(P/A,i,7)+4200(P/F,i,8)-12,000= 0 i=17% 3000(3.922)+4200(0.2848) -12,000= 962  i=18% 3000(3.812)+4200(0.2660) -12,000= 553 i=20% 3000(3.605)+4200(0.2326) -12,000= -208
7-52:  Purchase vs. Lease Interest rate (%) i  * NPW + - 553 18% 20% -208 i=18%+2%(553/761) i=19.45% 13,200 -12,000
7-52:  Purchase vs. Lease ,[object Object],[object Object]
Evaluation of multiple alternatives ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Repeated evaluation of alternatives A B C D Multiple comparisons of return on incremental investment
General suggestions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Payback period analysis ,[object Object],[object Object],[object Object],[object Object],[object Object]
Benefit cost ratio ,[object Object],[object Object],[object Object]
9.9  Three alternatives ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Future worth: Option C 39.6 110 F F=-110(F/P,12,4) -110(F/P,12,8)  -110(F/P,12,12) +39.6(F/A,12,12) F=81.61
Future worth analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Benefit-cost ratio analysis Year C A C-A 0 -110  -50 -60 1 39.6  28.8 10.8 2 39.6 28.8-50 60.8 3 39.6 28.8 10.8 4 39.6 28.8 10.8 Present worth of Cost=60 Present work of benefit=10.8(P/A,12,4)+50(P/F,12,2) B/C=72.66/60>1 Reject A
Benefit-cost ratio analysis Year B C B-C 0 -150  -110 -60 1-4 39.6  39.6 0 4 0 -110 110 5-6 39.6 39.6 0 6 -150 0 -150 7-8 39.6 39.6 0 8 0 -110 110 9-12 39.6 39.6 0
Benefit-cost ratio analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Payback period ,[object Object],[object Object],[object Object],[object Object]
Summary ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Motor comparison ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Motor comparison ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Key points to remember ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Interest rates, depreciation, and inflation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Nominal and effective interest rates ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Depreciation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Methods for depreciation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Methods for depreciation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Depreciation calculations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Depreciation of machine ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
10.3 Capsulating machine ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
10.3 Straight line ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
10.3 Sum of year digits  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
10.3 Double declining balance  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
10.3 Summary of depreciation schedules ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Straight line depreciation if DDB has been used in previous years ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Inflation ,[object Object],[object Object],[object Object],[object Object]
13.33  Value of a 10,000 investment ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],13.33  Value of a 10,000 investment
Alternate solution solving for real dollars ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
13.30  Comparison of alternatives with inflation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
13.30  Cash flow ,[object Object],[object Object],[object Object],[object Object],[object Object]
Cash flow for option A ,[object Object],[object Object],[object Object],[object Object],[object Object]
Cash flow for option B ,[object Object],[object Object],[object Object],[object Object],[object Object]
Incremental ROR analysis A-B ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Eit orginal

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  • 14. Present cost of A 0 1 2 3 52,000 15,000 13,000 P 4 = -52000+(38,000-15,000)(P/A,12%,4)+13,000(P/F,12%,4) P 12 = P 4 + P 4 (P/F,12%,4) + P 4 (P/F,12%,8) P 12 =$53,255 52,000 52,000 15,000 15,000 5 6 7 15,000 15,000 15,000 38,000 38,000 38,000 38,000 38,000 38,000 13,000 9 10 11 15,000 15,000 15,000 13,000 12 38,000 38,000 38,000 P 4 P 4 P 4 A=38,000-15,000 i= MARR=12% n=4 F=13,000
  • 15. Present cost of B 0 1 2 3 63,000 9,000 P 6 = -63000+(31,000-9,000)(P/A,12%,6)+19,000(P/F,12%,6) P 12 = P 6 + P 6 (P/F,12%,6) P 12 =$55,846 63,000 9,000 9,000 5 6 7 9,000 9,000 9,000 31,000 31,000 31,000 31,000 9 10 11 9,000 9,000 9,000 13,000 12 9,000 31,000 19,000 31,000 31,000 31,000 31,000 31,000 4 9,000 P 6 P 6 A=31,000-9,000 i= MARR=12% n=6 F=19,000
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  • 20. 7-52: Purchase vs. Lease n=8 Purchase-Lease 3000 4200 PW of Benefits-PW of Costs=0 3000(P/A,i,7)+4200(P/F,i,8)-12,000= 0 i=17% 3000(3.922)+4200(0.2848) -12,000= 962 i=18% 3000(3.812)+4200(0.2660) -12,000= 553 i=20% 3000(3.605)+4200(0.2326) -12,000= -208
  • 21. 7-52: Purchase vs. Lease Interest rate (%) i * NPW + - 553 18% 20% -208 i=18%+2%(553/761) i=19.45% 13,200 -12,000
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  • 24. Repeated evaluation of alternatives A B C D Multiple comparisons of return on incremental investment
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  • 29. Future worth: Option C 39.6 110 F F=-110(F/P,12,4) -110(F/P,12,8) -110(F/P,12,12) +39.6(F/A,12,12) F=81.61
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  • 31. Benefit-cost ratio analysis Year C A C-A 0 -110 -50 -60 1 39.6 28.8 10.8 2 39.6 28.8-50 60.8 3 39.6 28.8 10.8 4 39.6 28.8 10.8 Present worth of Cost=60 Present work of benefit=10.8(P/A,12,4)+50(P/F,12,2) B/C=72.66/60>1 Reject A
  • 32. Benefit-cost ratio analysis Year B C B-C 0 -150 -110 -60 1-4 39.6 39.6 0 4 0 -110 110 5-6 39.6 39.6 0 6 -150 0 -150 7-8 39.6 39.6 0 8 0 -110 110 9-12 39.6 39.6 0
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