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By David L. Whitman, Ronald E. Terry
The authors hide basic themes: simple engineering economics and danger research during this textual content. in the subject of engineering economics are discussions at the time price of cash and curiosity relationships. those curiosity relationships are used to outline sure undertaking standards which are utilized by engineers and undertaking managers to pick the easiest financial selection between numerous possible choices. tasks tested will contain either source of revenue- and service-producing investments. the consequences of escalation, inflation, and taxes at the monetary research of possible choices are mentioned. chance research contains the recommendations of likelihood and records within the assessment of possible choices. this permits administration to figure out the likelihood of luck or failure of the venture. different types of sensitivity analyses are offered. the 1st is known as the diversity technique whereas the second one makes use of probabilistic ideas to figure out a degree of the danger concerned. The authors have designed the textual content to aid participants to arrange to effectively whole the economics parts of the basics of Engineering examination.
desk of Contents: creation / curiosity and the Time price of cash / undertaking assessment tools / provider generating Investments / source of revenue generating Investments / choice of undertaking money circulate / monetary Leverage / easy records and chance / Sensitivity research
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Which contractor’s offer would you accept? Repeat the analysis with the NP V technique. 10. John Q. Customer has received his bill for the next 6 months premium on his auto insurance. 00. 50 in two months, the other half of the premium. ” What is the effective annual interest rate of the loan? ” Why or why not? 48 3. 11. A project is expected to cost $2,000,000 and have the following net revenues: Year 1 2 3 4 5 6 Net Revenue 1,000,000 800,000 600,000 400,000 200,000 100,000 Calculate the undiscounted and discounted payout periods.
The investor’s MARR is 10% and the investor only has enough funds to invest in one of the projects. What are the I RRs for each project? 6. RATE OF RETURN METHODS 33 Project B: 0 1 2 3 4 5 -800 100 100 100 100 900 As noted, the calculation of I RR usually involves a trial and error approach. While the NP V versus interest rate curve is not a straight line, it is generally accurate enough to bracket the I RR solution within 5% and then linearly interpolate for the answer. 6%. 2 was generated with the cash flows from Project B.
22. 11 for MARR values of 5%, 10%, and 15%. 23. 12. 1 INTRODUCTION There are, in general, two types of investments—one which produces income and one which produces a service. A service producing investment is one that results in a cash flow diagram that normally contains no positive cash flows with the exception of a possible salvage value of the service. Salvage value is the estimated value of an asset at the end of its useful life. It is assumed that the asset can be sold (as scrap metal for example) for this value as a positive cash flow to the project.