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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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This note was uploaded on 01/11/2012 for the course EIN 4354 taught by Professor Tufecki during the Fall '08 term at University of Florida.
 Fall '08
 tufecki

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