This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: ISE 460: Engineering Economy University of Southern California Fall 2010 Joseph Chow Week 3: Lecture 6 HW Schedule Summary HW #1, due 9/14/10 • Lecture 1 – 1.3 – 1.4 • Lecture 2 – 1.5 HW #2, due 9/16/10 • Lecture 3 – 2.1 – 2.2 • Lecture 4 – 2.3 – 2.4 • Lecture 5 – 2.5 • Lecture 6 – 2.6 10/12/10 2 Review • Role of Engineering Economics (Ch 1) • Accounting Basics (Ch 2) • Economic Equivalence, Cash Flow Analysis (Ch 3) • Interest Rates, Borrowing and Investing (Ch 4) • Today… – Minimum Attractive Rate of Return, Present Worth Analysis (or Net Present Value), Analysis Periods (Ch 5) 10/12/10 3 Refresher: Payback Period • If a project costs $100,000 and is expected to return $25,000 annually, how long does it take to recover the initial investment? What would be the discounted payback period at i = 15%? 10/12/10 4 Conventional Payback Period • If a project costs $100,000 and is expected to return $25,000 annually, how long does it take to recover the initial investment? What would be the discounted payback period at i = 15%? Period n Cash Flow Project Balance ($100,000) ($100,000) 1 $25,000 ($75,000) 2 $25,000 ($50,000) 3 $25,000 ($25,000) 4 $25,000 5 $25,000 $25,000 10/12/10 5 Discounted Payback Period Period n Cash Flow Cost of Funds (15%) Cash Balance ($100,000 ) ($100,000) 1 $25,000 ($15,000) ($90,000) 2 $25,000 ($13,500) ($78,500) 3 $25,000 ($11,775) ($65,275) 4 $25,000 ($9791) ($50,066) 5 $25,000 ($7,510) ($32,576) 6 $25,000 ($4,886) ($12,463) 7 $25,000 ($1,869) $10,668 10/12/10 6 Interpolate: (x – 6)/(7 – 6) = (0+12463)/(10668+12463) x = 6.54 yrs Warm Up Problem: Identifying Project Cash Flows (PARK Ex 5.1) • XL Chemicals considering investing in a computerprocess control system in one of its process plants • Plant: – 40% of time (3500 operating hrs) produces proprietary demulsification chemical annually 30,000 kg that sells for $15/ kg – 60% produces other specialty chemicals • Control system costs $650,000, increase maintenance costs by $53,000/yr, useful life of 8 yrs – Improve purity of demulsification chemical: +$2/kg – Higher reaction yields: +4000 kg/yr for same raw materials and production time – Number of process operators reduced by one shift: $25 per operating hr • What are the steps to obtain the net cash flow?...
View
Full
Document
This note was uploaded on 10/11/2010 for the course ISE 460 taught by Professor Bottlik during the Spring '06 term at USC.
 Spring '06
 Bottlik

Click to edit the document details