Final Review Ch1-17

# Final Review Ch1-17 - Final Review Spring Engineering 110...

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Final Review Spring Engineering 110

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CHAPTER 1 - Intro 1. Know the decision making framework 1. Recognize the problem/opportunity 2. Determine goal/objective 3. Assemble relevant data 4. Identify feasible alternatives 5. Select the criterion 6. Construct the model 7. Predict each alternative’s outcome 8. Choose best alternative 9. Audit the results 2. Think about ethical issues
CHAPTER 2 - Costs 1. Know cost categories Incremental Costs Life-Cycle Costs 2. Understand estimating approaches a. Per unit b. Segmenting c. Power Sizing d. Learning Curve (T n = T initial * N b ) 2. Know how to draw cash flow diagrams

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Cash Flow Diagram Example Write out the cash flows of a used car that bought for \$1000, has maintenance costs of \$250 per year for 3 years, and a salvage cost of \$500 -1000 -250 -250 -250 500
CHAPTER 3 - Interest 1. Simple interest (P * I * N) 2. Compound interest (assumed) Single Payment F = P(1+i) n [Compound Amount] P = F(1+i) -n [Present Worth] 1. Understand equivalence – point of indifference between two or more alternatives

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Compounding Example Next year I'm withdrawing \$500 from a bank account that has a 10% annual interest rate. If there was daily compounding, how much did I put in initially? PV = FV [(1+ r m ) m ] PV = 500 1+ 0.1 365 ae è ç ö ø ÷ 365 é ë ê ù û ú
CHAPTER 4 – More Interest 1. Uniform Series Calculations [Compound Amount] (A is known) [Sinking Fund Factor] (F is known) [Capital Recovery Factor] (P is known) [Present Worth Factor] (A is known) 1. Arithmetic & Geometric Gradient Factors not tested on the midterm ) n , i , A F ( A i 1 i) (1 A F n = - + = A = F i (1+i) n - 1 é ë ê ù û ú = F ( A F , i , n ) ) n , i , P A ( P 1 i) (1 ) i 1 ( i P A n n = - + + = ) n , i , A P ( A ) i 1 ( i 1 i) (1 A P n n = + - + = m r i = 1 ) 1 ( 1 ) 1 ( i m - + = - + = m a i m r 1 e i r a - =

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Annuity Example Year Cash Flow 0 -500 1 375 4 850 Convert the following into cash flows that are all the same size for 4 years. Interest rate is 5% NPV = -500 + 375/(1+0.05)^1 + 850/(1+0.05)^4 A = NPV i (1+ i ) n (1+i) n - 1 é ë ê ù û ú = NPV 0.05(1+0.05) 4 (1+0.05) 4 - 1 é ë ê ù û ú
APR Example Calculate the APR of a bank account with 5.65 EAR, assuming monthly compounding. APR = m[(1+EAR) 1/m -1] = 12[(1+0.0565) 1/12 -1]

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CHAPTER 4 – More Interest (Con’t) 4. Continuous Calculations a. Single Payment Compound amount formula F = P(1+i) n F = P(1 + r/m) mn where m = of compounding subperiods in n years Leads to derivation of F = P(e rn ) and P = F(e -rn ) b. Uniform Payment Series Not Tested on the Midterm
I place \$100 dollars in a bank account at 5% annual interest rate. What is it worth next year? What about with monthly compounding? Annual: FV = (100)(1+0.05)

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## Final Review Ch1-17 - Final Review Spring Engineering 110...

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