Lecture 8 - CVEN 349: Civil Engineering Project Management...

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1 CVEN 349: Civil Engineering Project Management LECTURE # 8 Fall 2009 Dr. Ivan Damnjanovic Time Time-value of Money value of Money ± All Projects involve a cash stream of some sort. ± It is usually a combination of both income and expenses. ± If the net is positive the project “made money”; otherwise, it “lost money.” ± One way to sort out project alternatives is through engineering economy. The General Concepts ± Money, besides being a measure of value, is a commodity, just like gold, wheat, pork bellies… ± It is can be bought, sold, borrowed, loaned, saved, consumed, and stolen. ± When money is borrowed the “rent” is called interest. If you loan money you earn interest; If you borrow money you pay interest. ± Because the amount of interest is a function of time, the value of an amount of money varies as a function of time.
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2 Interest ± There is simple interest and compound interest. ± Simple interest is as old as history itself. It is simply a certain % of the money loaned. Time may, or may not, be a factor. ± Compound interest is a relatively new invention (1700’s?) and is essentially, interest on interest. Discounting ± When interest rates are greater than zero, $$-amounts can only be summed at the same point in time. ± Usually, this means that all future $$ amounts are converted to a present value amounts are converted to a present value before they are summed. ± This is called “discounting” the cash flow.
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This note was uploaded on 05/28/2010 for the course CVEN 349 taught by Professor Damjanovic during the Fall '09 term at Texas A&M.

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Lecture 8 - CVEN 349: Civil Engineering Project Management...

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