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Lecture_14.2_Engineering_Economics_IV - AE309 Lecture 14.2...

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AE309 Lecture 14.2 Engineering Economics IV Reference: Lindeburg, Engineering Economic Analysis IRR Example – Winning the Lottery . With your recent streak of luck, you’ve decided to go out on a limb and purchase a Powerball ticket for this weekend’s lottery drawing. When buying the ticket you have the option to choose the one time cash payment ($177.3M) or the 30 annuity payments ($365M). In order to decide, you choose to figure out what interest rate the lottery is getting and whether or not you can find a better interest rate on your own. What is the internal rate of return for the lottery? P = Pa + A(P/A, i e ,n) ( ) = ( ) + ( )(P/A, i e , ) ( ) = ( )(P/A, i e , ) ( ) / ( ) = (P/A, i e , ) = ( P / A , i e , ) Falls between _______ % and _______ % but very close to 6% If you Interpolate: = _________ %
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Benefit - Cost Ratio Analysis o Compare the ratio of benefits to costs o Used in some governmental analysis of projects Benefits = Costs If, at a given minimum attractive rate of return (MARR), the PW of Benefits
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Lecture_14.2_Engineering_Economics_IV - AE309 Lecture 14.2...

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