# Review1-3 - Review Chapter 1 ~ Chapter 3 Chapter 1 Understand the fundamental concepts of engineering economy Learn basic terminologies Learn the

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Review Chapter 1 ~ Chapter 3

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Chapter 1 Understand the fundamental concepts of engineering economy. Learn basic terminologies. Learn the way to calculate the several measures.
Interest Rate Interest : manifestation of the time value of money Interest rate : when the interest paid over a speciFc time unit Interest rate(%) = interest accrued per time unit original amount × 100% Interest = amount owed now - original amount

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Rate of Return (ROR) Interest earned over a speciFc period expressed as a percentage of the original amount Also called as return on investment (ROI) Virtually, interest rate = rate of return! Rate of return (%) = interest accrued per time unit original amount × 100%
Calculation Simple interest Compound interest Simple interest = principal × # of interest period × interest rate Compound interest (1 period) = (principal + all accumulated interest) × interest rate

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Minimum Attractive Rate of Return (MARR) Reasonable rate, which is higher than the rate expected from a bank or some safe investment that involves minimal investment risk To be considered Fnancially viable, a project’s expected ROR must meet or exceed the MARR .
Cash Flow Diagram Cash infows are positive cash fows. Cash outfows are negative cash fows. Net cash fow = cash infows – cash outfows All cash fows occur at the end o± the interest period.

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Cash Flow Diagram 1 2 3 4 0 Cash Infow Cash Outfow
Rule of 72 Rule of 72 is useful in estimating the number of years ( n ), or the rate of return ( i ), required for a single cash Fow amount to DOUBLE in SIZE . Rule of 72 can be used to determine i or n when interest rates are compounded , (note: i is in percent)

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Rule of 72 Estimated n = 72 i Estimated i = 72 n
Rule of 100 Rule of 100 is used to calculate the exact number of years ( n ), or the rate of return ( i ) required for a single cash Fow amount to DOUBLE in SIZE when simple interest is used.

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Rule of 100 Estimated n = 100 i Estimated i = 100 n
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## This note was uploaded on 10/18/2009 for the course HBFSJFI ges2302 taught by Professor Inkla during the Spring '09 term at École Normale Supérieure.

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Review1-3 - Review Chapter 1 ~ Chapter 3 Chapter 1 Understand the fundamental concepts of engineering economy Learn basic terminologies Learn the

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