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Lec%2021_Full - IE 343 Engineering Economics Lecture 21...

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Unformatted text preview: IE 343 Engineering Economics Lecture 21: Chapter 6 - Comparison and Selection among Alternatives Instructor: Tian Ni Oct.17, 2011 IE 343 Fall 2011 1 Quiz 5 will be given at the beginning of the class 4:30PM 4:45PM on Wednesday Oct.19 Quiz 5 will have 3 problems totally 10 points You will have 15 minutes to finish quiz 5 Please bring a CALCULATOR to the quiz All quiz 5 problems will be selected from the following three sources. You will see the same problems but maybe with numbers changed IE 343 Fall 2011 Tips for Quiz 5 2 Three sources: 1. Homework 5 Problem 1-9 (solutions for Homework 5 will be posted on Blackboard Vista after class) 2. Examples on Lecture Notes (please refer to the full version lecture notes for the example solutions) Lec 14_Full: Example 5.1 (PW, FW) Lec 17_Full: Example 5.1 (AW, CR) Lec 18_Full: Example 5.1 (IRR, Linear Interpolation) Lec 19_Full: Example 5.1 (ERR) 3. Examples on Textbook Chapter 5: Example 5.1 to 5-18 before Payback Period Method IE 343 Fall 2011 Tips for Quiz 5 3 IE 343 Fall 2011 Last Time Decision Rules: 1. Equivalent Worth method Present Worth(PW) Annual Worth(AW) Future Worth(FW) 2. Rate of Return method Internal Rate of Return(IRR) External Rate of Return(ERR) 3. Payback Period method Simple Payback Discounted Payback 4 IE 343 Fall 2011 Last Time Summary of Decision Rules Economic Measure of Merit Decision Variable Decision Rule Decision Accuracy Notes AW, PW, FW Time value of money If PW (or AW, FW) 0, accept the project; Otherwise, reject it Accurate All are functions of MARR IRR interest rate i' If i' MARR, accept the project; Otherwise, reject it Solve for unknown interest rate, i' ERR Simple payback Time period Find out the 1st year which gives the positive balance Not Accurate Simple payback does not consider time value of money; Discounted payback Accurate Discounted payback considers time value of money 5 Comparing Alternative Projects IE 343 Fall 2009 6 In Chapter 5, we learned how to evaluate the economic profitability (acceptability) of a single alternative using various measures (PW, AW, FW, IRR, ERR). In Chapter 6, we will learn how to use these profitability measures to evaluate and compare multiple alternatives. IE 343 Fall 2011 Comparing Alternative Projects 7 If we have mutually exclusive alternatives, then we need to compare the alternatives against each other We can select at most one alternative. (Do-nothing may be an implicit alternative.) IE 343 Fall 2011 Comparing Alternative Projects 8 If we have independent alternatives (Chapter 5), then we need to compare each alternative separately against the do-nothing alternative and decide whether it is acceptable or not. We can select more than one alternative....
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This note was uploaded on 01/28/2012 for the course IE 343 taught by Professor Vincent,g during the Winter '08 term at Purdue.

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Lec%2021_Full - IE 343 Engineering Economics Lecture 21...

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