[PPT] - 7 Chapter 2 Factors: How Time and Interest Affect Money Progressive PowerPoint Presentation

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Chapter 1 Foundations of Engineering Economy 1.1 Engineering Economics: Description and Role in Decision Making 1.2 Performing an Engineering Economy Study 1.3 Professional Ethics and Economic Decisions 1.4 Interest Rate and Rate of Return 1.5 Terminology and Symbols 1.6 Cash Flows: Estimation and Diagramming 1.7 Economic Equivalence 1.8 Simple and Compound Interest 1.9 Minimum Attractive Rate of Return 1.10 Introduction to Spread sheet Use

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Chapter 2 Factors: How Time and Interest Affect Money

– Progressive Example-The Cement Factory Case 2.1 Single-Amount Factors (F/P and P/F) 2.2 Uniform Series Present Worth Factor and Capital Recovery Factor (P/A and A/P) 2.3 Sinking Fund Factor and Uniform Series Compound Amount Factor (A/F and F/A) 2.4 Factor Values for Untabulated i or n Values 2.5 Arithmetic Gradient Factors (P/G and A/G) 2.6 Geometric Gradient Series Factors 2.7 Determining i or n for Known Cash Flow Values

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Chapter 3 Combining Factors and Spread sheet Functions

3.1 Calculations for Uniform Series That Are Shifted 3.2 Calculations Involving Uniform Series and Randomly Placed Single Amounts 3.3 Calculations for Shifted Gradients 9

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Chapter 4 Nominal and Effective Interest Rates

Progressive Example -The Credit Card Offer Case

4.1 Nominal and Effective Interest Rate Statements 4.2 Effective Annual Interest Rates 4.3 Effective Interest Rates for Any Time Period 4.4 Equivalence Relations: Payment Period and Compounding Period 4.5 Equivalence Relations: Single Amounts with PP ≥CP 4.6 Equivalence Relations: Series with PP ≥CP 4.7 Equivalence Relations: Single Amounts and Series with PP < CP 4.8 Effective Interest Rate for Continuous Compounding 4.9 Interest Rates That Vary over Time

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Chapter 5 Present Worth Analysis

Progressive Example-Water for Semiconductor Manufacturing Case 5.1 Formulating Alternatives 5.2 Present Worth Analysis of Equal-Life Alternatives 5.3 Present Worth Analysis of Different-Life Alternatives 5.4 Future Worth Analysis 5.5 Capitalized Cost Analysis

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Chapter 6 Annual Worth Analysis

6.1 Advantages and Uses of Annual Worth Analysis 6.2 Calculation of Capital Recovery and AW Values 6.3 Evaluating Alternatives by Annual Worth Analysis 6.4 AW of a Permanent Investment 6.5 Life-Cycle Cost Analysis

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Chapter 7 Rate of Return Analysis: One Project

7.1 Interpretation of a Rate of Return Value 7.2 Rate of Return Calculation Using a PW or AW Relation 7.3 Special Considerations When Using the ROR Method 7.4 Multiple Rate of Return Values 7.5 Techniques to Remove Multiple Rates of Return

7.6 Rate of Return of a Bond Investment

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Chapter 8 Rate of Return Analysis: Multiple Alternatives

8.1 Why Incremental Analysis Is Necessary 8.2 Calculation of Incremental Cash Flows for ROR Analysis 8.3 Interpretation of Rate of Return on the Extra Investment 8.4 Rate of Return Evaluation Using PW: Incremental and Breakeven 8.5 Rate of Return Evaluation Using AW 8.6 Incremental ROR Analysis of Multiple Alternatives 8.7 All-in-One Spread sheet Analysis (Option al)

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Chapter 8 Rate of Return Analysis: Multiple Alternatives

8.1 Why Incremental Analysis Is Necessary 8.2 Calculation of Incremental Cash Flows for ROR Analysis 8.3 Interpretation of Rate of Return on the Extra Investment 8.4 Rate of Return Evaluation Using PW: Incremental and Breakeven 8.5 Rate of Return Evaluation Using AW 8.6 Incremental ROR Analysis of Multiple Alternatives 8.7 All-in-One Spread sheet Analysis (Option al)

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Chapter 9 Benefit/Cost Analysis and Public Sector Economics

Progressive Example-Water Treatment Facility #3 Cases 9.1 Public Sector Project 9.2 Benefit/Cost Analysis of a Single Project 9.3 Alternative Selection Using Incremental HIC Analysis 9.4 Incremental BIC Analysis of Multiple, Mutually Exclusive Alternatives 9.5 Service Sector Projects and Cost-Effectiveness Analysis 9.6 Ethical Considerations in the Public Sector

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CHAPTER 1

Foundations Of Engineering Economy

Lecture slides to accompany Engineering Economy 7th edition Leland Blank Anthony Tarquin

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Learning Objectives

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Learning Objectives

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Learning Objectives

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Chapter Overview

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Chapter Overview

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What is Engineering Economy?

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Why Engineering Economy is Important to Engineers?

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Engineering Economy

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General Steps for Decision Making Processes

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The Big Picture

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An Engineering Economic Decision

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What do we need to know to make a decision?

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What do we need to know to make a decision?

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Economic Decision-Making Process

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Economic Decision-Making Process

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Economic Decision-Making Process

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Economic Decision-Making Process +3 &' '5 ' '

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Time Value of Money (TVM)

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Description: TVM explains the change in the amount of money over time for funds owed by or owned by a corporation (or individual)

Corporate investments are expected to earn a return Investment involves money Money has a ‘time value’

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Steps in an Engineering Economy Study 38

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Interest and Interest Rate

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Interest and Interest Rate

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Interest and Interest Rate

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Rate of Return (ROR)

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Interest paid Interest earned

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Commonly used Symbols

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Parameters and Cash Flows

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Cash Flow

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Cash Flows: Terms

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Categories of Cash Flows

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Cash Flows: Estimating

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Point estimates are commonly used; however, range estimates with probabilities attached provide a better understanding of variability of economic parameters used to make decisions

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Cash Flow diagrams

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Drawing a Cash Flow Diagram

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Cash Flow Diagrams

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An Example of Cash Flow Diagram

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Cash Flow Diagram 54

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Cash Flow Diagram Example

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Economic Equivalence

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Example of Equivalence

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Equivalence Illustrated

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Simple and Compound Interest

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For One Year

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End of 3 Years

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Simple and Compound Interest

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Compound Interest

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Compound Interest Cash Flow

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Compound Interest Example

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Compounded: $133,100 Simple: $130,000

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Compound Interest – Example

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Compound Interest – Example $ $ $

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Total due = principal × (1 + interest rate)number of years

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Some Fundamental Laws

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Practice Problem:

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Market Value

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Economic Equivalence

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Economic Equivalence

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Annual Amounts

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Introduction to Spread sheet Functions

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Minimum Attractive Rate of Return

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Rate of return %

Expected Rate of return on a new proposal Range for the rate of return on accepted proposals, if other proposal were rejected for some reasons MARR Rate of Return on “safe investment All proposals must offer at least MARR to be considered

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MARR Characteristics

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Types of Financing

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Opportunity Cost

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Ethics – Different Levels 80

Universal morals or ethics – Fundamental

beliefs: stealing, lying, harming or murdering another are wrong

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Personal morals or ethics – Beliefs that an

individual has and maintains over time; how a universal moral is interpreted and used by each person

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Professional or engineering ethics – Formal

standard or code that guides a person in work activities and decision making

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Code of Ethics for Engineers

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Code of Ethics for Engineers BEM 82

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Code of Ethics for Engineers BEM – Dos and Donts 83

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Chapter Summary

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Assignment 85

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Assignment 86