Module02 - Principles of Engineering Economy Part I: Cash...

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Unformatted text preview: Principles of Engineering Economy Part I: Cash Flows and Cash Flow Diagrams Key Concepts Last Module: Introduction to engineering economy and the decision making process. This Module: Cash Flows and the Cash Flow Diagram : the financial description (visual) of a project Cash Flow Movement of money in (out) of a project at a given point in time Inflows : revenues or receipts Cash Flows Discrete : Movement of cash to or from a project at a specific point in time. Continuous : Rate of cash Cash Flow Diagram Financial representation of a project. Describes type, magnitude and timing of cash flows over some horizon. Cash Flow Diagram Describes type, magnitude and timing of cash flows over some horizon 1 2 3 4 5 Time Periods over the Horizon Cash Flow Diagram Describes type, magnitude and timing of cash flows over some horizon 1 2 3 4 5 500K 50K 100K Discrete Cash Outflow (Disbursement, Expense) Note the direction of the arrow! Cash Flow Diagram Describes type, magnitude and timing of cash flows over some horizon 1 2 3 4 5 500K 200K 200K Discrete Cash Inflow (Revenue) 200K Cash Flow Diagram Describes type, magnitude and timing of cash flows over some horizon 1 2 3 4 5 500K 200K 50K 100K 200K 500K 200K Cash Flow Diagram Net cash flows add expenses and disbursements at same point in time. 1 2 3 4 5 500K 200K 50K 100K 200K 500K 200K Can write as net cash flow Cash Flow Diagram Net cash flows add expenses and disbursements at same point in time. 1 2 3 4 5 500K 200K 50K 200K 500K 100K Continuous cash flows define a rate of movement of cash over time. 1 2 3 4 5 500K 200K 200K 500K Continuous Cash Inflow (Revenue) 200K Rate of Flow per unit time Cash Flow Diagram Continuous cash flows define a rate of movement of cash over time. 1 2 3 4 5 500K 200K 200K 500K Continuous Cash Inflow (Revenue) 200K Rate of Flow per unit time While good for analysis, not used often! Cash Flow Diagram Can describe any investment opportunity. Typical investment: Cash Flow Diagram Can describe any investment opportunity. Typical investment: P Make an initial investment (purchase) Cash Flow Diagram Can describe any investment opportunity. Typical investment: 1 2 N Receive revenues over time. P 3 Cash Flow Diagram Can describe any investment opportunity....
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Module02 - Principles of Engineering Economy Part I: Cash...

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