HC-Lecture60-Equipment-Economics

HC-Lecture60-Equipment-Economics - Heavy Construction Heavy...

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Unformatted text preview: Heavy Construction Heavy Construction Lecture #60 Lecture #60 Fundamental Concepts f of Equipment Economics L. Prieto-Portar 2008 Equipment Economics & How much does it cost to operate the machine on a project? & What is the optimum economic life and the optimum manner to secure a machine ? Equipment Economics Equipment Economics & To provide the right equipment at the right time and place , so the work can be accomplished at the lowest cost: 1) How much does it cost to operate the machine on a project? 2) What is the optimum economic life and the optimum manner to secure a machine ? Work at the lowest cost & Cost of Money: Interest Rate & Sources of capital funds & Borrow & Earnings & Equity & Machine utilization & Purchase or Rent/Lease Life Cycle Cost? Decision Factors & Whether to buy, to lease, or to rent & Owning Cost & Operating costs & Depreciation vs. Economic life Specific actions & Minimize ownership and operating cost & Increase availability & Maintenance & Increase utilization & Load & Speed & Work Environment Information System & Equipment information system contains & Machine identification & Utilization data & Purchase cost & Repair cost & Operating charges & FOG (Fuel, Oil, Grease) Life Cycle Cost & Predicting costs of Ownership and Usage . & Using that information in decision making. Equipment Economics Time Value of Money Basic evaluation methods & Net Present Value Method & Equivalent Uniform Annual Value Method & Uniform Value Method & Internal Rate of Return (IRR) Method Factors affecting cash flows & Depreciation & Tax effects & Price-level changes & Treatment of risk and uncertainty Evaluations Make A($) B($) Operation 30,000 50,000 Labor 20,000 20,000 Maintenance 6,000 3,000 Total 56,000 73,000 Make A($) B($) Operation 30,000 50,000 Labor 20,000 20,000 Maintenance 6,000 3,000 Total 36,000 53,000 Time value of money If interest rate is 10% $1,000 in 2004 $1,100 in 2005 Evaluations (continued) Cash flow of altervatives Interest Rate: 10.00% Payback: 2,000 $ Year Paricipal Option #1 Option #2 Option #3- 10,000 1 11,000- 1,000 8,000 1,000 3,000 2- 1,000 6,000 800 2,800 3- 1,000 4,000 600 2,600 Option #4 4- 1,000 2,000 400 2,400 5 16,105 11,000- 200 2,200 Sum 11,000 16,105 15,000 13,000 payback of $2,000/year Interest Rank: 4 1 2 3 Guarantee More profits, More risk Again, time value of money looks different but the same return Evaluations (continued) Present Value: 909 2,727 826 2,314 751 1,953 683 1,639 0,000 0,000 ,830 ,366 10,000 10,000 6,830 1,366 Sum: 10,000 10,000 10,000 10,000 the same always Net Future Value & Single-Payment Compound Amount Factor F n=? Earning (+) investment period n F 1=? F 2=? F 3=? P Spending (-) interest rate i Period n Cash flow . Net Future Value & Single-Payment Compound Amount Factor 1 1 2 1 (1 (1 (1 i)(1 Pi)i (P Pi) (P i F F F Pi P F + + + = + = + = & where, & P = Present Value & F = Future Value & i = Interest rate & n = Number of periods n n 2 2 i) P(1 F i) P(1 i) i)(1 P(1 i) Pi)(1 (P F + = + = + + = + + = Net Future Value...
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HC-Lecture60-Equipment-Economics - Heavy Construction Heavy...

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