IOE+201+Notes+1 - IOE 201 Lecture Notes 1 Course IOE 201...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Course IOE 201 Economic Decision Making Instructor: Prof. Blumenfeld Wednesday 09/09/09 IOE 201 Lecture Notes 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 IOE 201 : Economic Decision Making Course Subject Area: Engineering Economics Scientific and engineering principles to address basic economic questions: - How much is this really going to cost ? - Do the benefits outweigh costs ? Mathematical techniques that simplify economic comparison of engineering alternatives. Course Objective: Understand and apply principles of Engineering Economics, to make informed economic decisions.
Background image of page 2
Importance of Engineering Economics in IOE Impact on investment and loan decisions - Current cash flow considerations - Future economic planning Impact on many industries - Banking industry - Housing industry - Automotive industry - Other manufacturing industries - Health care industry - Entertainment industry - Transportation industry 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Importance of Engineering Economics in IOE Impact on decisions at many levels - Individuals - Small business - Large corporation - Local, state, and federal government Impact on professional and personal decisions - Need for quantitative approach to evaluate alternatives - Need for fundamental principles in decision-making
Background image of page 4
5 Key Factors in Engineering Economics Time: Value of money at different points in time Uncertainty: Impact of random variability in finance
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Time Value of Money Money can earn more money over time ( earning power ) Interest is an amount charged for the use of money Increase in money earned per unit time is the interest rate . Purchasing power of money changes over time ( inflation ).
Background image of page 6
7 Methods of Calculating Interest Simple Interest: Interest earned only on initial amount (principal). Compound Interest: Interest earned on initial amount (principal) plus Interest earned on interest
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Simple Interest Year Beginning Balance Interest Earned Ending Balance 1 $1000 $50 $1050 2 $1050 $50 $1100 3 $1100 $50 $1150 Interest earned each year = $1000 × 0.05 = $50 Example: Principal: $1000 Interest rate: 5% per year (0.05 per year) Total amount at end of 3 rd year = $ 1000 + (3 × 50) = $1150 8
Background image of page 8
9 Simple Interest Year Beginning Balance Interest Earned Ending Balance 1 P iP P + iP 2 P + iP iP P + 2 iP 3 P + 2 iP iP P + 3 iP N P + ( iP )( N - 1) iP P + ( iP ) N General case: P = Principal ($) i = Interest rate per year Interest earned each year = iP Total interest earned at end of N th year = ( iP ) N Total amount at end of N th year = P + ( iP ) N = P (1 + iN )
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10 Compound Interest Year Beginning Balance Interest Earned Ending Balance
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 30

IOE+201+Notes+1 - IOE 201 Lecture Notes 1 Course IOE 201...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online