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Cost Estimating - Cost Estimating Objectives(Chapter 6 of...

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Copyright 2003 John Baldwin 1 ChEn 425 – Cost Estimating – Slide 1 Cost Estimating Objectives (Chapter 6 of Peters, Timmerhaus and West) ° Understand the dynamics of industrial operation cash flow. ° Recognize the factors for investment and production costs. ° Understand the types of industrial capital investments. ° Understand what is included in capital investment estimation. ° Understand the types and quality of capital cost estimates. ° Understand when and how to use cost indexes. ° Recognize the components of cost for capital investment. ° Understand the methods to estimate capital investment. ° Be able to estimate revenue. ° Be able to determine gross profit, net profit and cash flow. ChEn 425 – Cost Estimating – Slide 2 Cash Flow Note diagram at right for flow of funds using tree growth analogy: § Stock/loans/bonds (roots). § Capital source/sink (reservoir). § Total Capital Investment (trunk): Manufacturing fixed capital investment. Nonmanufacturing fixed capital investment. Working Capital necessary because income and costs occur irregularly. § Operations use working capital and replenish with income from sales but also produces profit. § Profit (sales minus operation costs) used for taxes and replenishes capital source/sink reservoir. § Depreciation (d j ) reduces the profit exposed to income taxes.
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