Lecture 8

Lecture 8 - ISE460:Engineering Economy...

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ISE 460: Engineering  Economy University of Southern California Fall 2010 Joseph Chow Week 4: Lecture 8
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HW Schedule Summary HW #2, due 9/17/10 Lecture 3 2.1 2.2 Lecture 4 2.3 2.4 Lecture 5 2.5 Lecture 6 2.6 HW #3, due 9/23/10 Lecture 7 3.1 3.2 Lecture 8 3.3 3.4 3.5 10/12/10 2 First midterm in Week 6  covers through this HW  material!
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HW 3.1 (due 9/23/10) PARK P5.22 Consider the cash flows below  and present-worth profile on the  right.   A) Determine the values of X and  Y. B) Calculate the terminal project  balance of project 1 at MARR =  24%. C) Find the values of a, b, and c in  the NPW plot. 10/12/10 3 1 pt REVISED!
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Review Prior Economic Equivalent Present Worth Analysis Mutually Exclusive Alternatives with Different  Costs Today Mutually Exclusive Alternatives with Different  Analysis Periods Sunk Costs, Opportunity Costs 10/12/10 4
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The Analysis Period 10/12/10 5 PARK’s classification
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ANALYSIS PERIOD MATCHES  PROJECT LIVES 10/12/10 6
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Project Lives Matches Analysis  Period (Ex 5.9) Bullard Co. wants to expand it industrial  machinery products by manufacturing machine  tables, saddles, machine bases, and other similar  parts Several options available: M1: new machining center with 3 operators M2: new machining center with an automatic pallet  changer and 3 operators M3: new machining center with an automatic pallet  changer and 2 task-sharing operators Pallet-changer costs more but reduces time to  load and unload parts 10/12/10 7 If all three have NPW < 0,  then Do Nothing is a 4 th   option!
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Project Lives Matches Analysis  Period (Ex 5.9) Bullard Co. wants to expand it industrial machinery products by  manufacturing machine tables, saddles, machine bases, and other  similar parts Several options available: M1: new machining center with 3 operators M2: new machining center with an automatic pallet changer and 3  operators M3: new machining center with an automatic pallet changer and 2 task- sharing operators Pallet-changer costs more but reduces time to load and unload  parts Task-sharing operators save on labor costs, but take longer to train  and are more inefficient initially (annual benefits gradually increase  by 13% per year) 5-year study period i = 12% Just determine the NPW’s for each option for a 5-year period! 10/12/10 8
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Project Lives Matches Analysis  Period (Ex 5.9)   M1 M2 M3 Investment:      Machine tool purchase $121,000 $121,000 $121,000    Automatic pallet changer $66,600 $66,600    Installation $30,000 $42,000 $42,000    Tooling expense $58,000 $65,000 $65,000    Total investment $209,000 $294,600 $294,600 Annual benefits: Year 1      Additional revenues $55,000 $69,300 $36,000    Direct labor savings $17,300
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Lecture 8 - ISE460:Engineering Economy...

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