ISE504_PartII

ISE504_PartII - ISE 504 (Spring 2008) Lecture Notes Part II...

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Unformatted text preview: ISE 504 (Spring 2008) Lecture Notes Part II square6 Worth Analysis (Ch 5-6) square6 Rate of Return Analysis (Ch 7-8) square6 Payback Period (Section 5.6) square6 Budgeting (Ch 12) square6 Breakeven Analysis (Ch 13) Worth Analysis (Chapters 5-6) Fundamental Questions square6 Should we proceed with this project? square6 Given options for how to accomplish this project, which is the best? square6 Given multiple project proposals and limited funding resources, which should we choose? square6 All of the above should technically be followed by based on economic grounds. Analysis methods square6 Present worth (chapter 5) square6 unknown P square6 implies worth in year 0 square6 Closely related: future worth (in any year) square6 Annual worth (chapter 6) square6 unknown A square6 Rate of return (chapters 7 and 8) square6 unknown i square6 Payback period (section 5.6; chapter 13) square6 unknown n Projects square6 Independent square6 Should I do this project or not? square6 Yes/No square6 Mutually exclusive square6 Which project should I choose? square6 Multiple choice; select one (or maybe none) square6 Null Alternative square6 Sometimes we have the choice of doing nothing square6 Independent projects: always compared to the null alternative square6 Mutually exclusive projects: sometimes compared to the null alternative Examples square6 Independent square6 Should the company buy a vehicle for employees to use on company business, or keep paying personal vehicle mileage? square6 Should we replace a manual work cell with a robotic work cell, or leave it as is? square6 Mutually Exclusive square6 Should the company buy a Honda, buy a Kia, or do nothing? square6 Should the company install partial automation, install lights-out manufacturing, move manufacturing offshore, or do nothing? square6 Should the company buy a cheap, high-maintenance stack scrubber to meet a new mandatory EPA requirement, or a more expensive one that is cheaper to maintain? (Do nothing is not an alternative.) Some vocabulary square6 Benefit (+ cash flow) square6 Cost (- cash flow) square6 PW(costs) present worth of costs square6 PW(benefits) present worth of benefits square6 Net Present Worth (Value) NPW (NPV) square6 Planning horizon (length of the project or life of the alternative) square6 Salvage Value (end of life; implies scrap value) square6 Terminal Value (end of project; implies sale on the used market; can be a cost too) Typical Engineering Project Investment Net Benefit Terminal Value 2 1 4 5 3 4 1.3 1.3 1.8 1.3 Present Worth Analysis square6 Back to the E-core example, with terminal value. MARR=18% NPV = ($207,648) square6 What does the negative NPV mean? Does the project loose money?...
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ISE504_PartII - ISE 504 (Spring 2008) Lecture Notes Part II...

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