Lecture-22-why unit cost

# Problems its not really even its own type of problem

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Unformatted text preview: ll cost alternatives problems) (most It’s a method of solution Done in most fields because it presents the Done answer in one number easy for someone in the business to understand business If I tell you it costs 25 cents/mile to own and operate an If automobile you understand fast automobile Done because it covers up nasty practical Done problems with simple All Cost Alternatives problems Especially the infamous unequal lives problem Summary of 5 Types of Problems Problems Invest and Earn Problem All Cost Alternatives Problem Incremental Investment Problem Competing Investments Problem Unit Cost Problem Basics Needed Basics Identify the investor and build a cash flow Identify showing money in and out of his pocket showing Identify the point of decision and put the Identify pot at that location pot iidentify needed locations for any temporary dentify pots pots The Six Magic Numbers The P/F F/P P/A A/P F/A A/F There are a few other minor numbers Interest Rates Interest Interest Rates are almost always Interest reported annually reported can be adjusted to other compounding can periods so they can be used as i in magic numbers numbers Example - Convert to Monthly Interest Annual Rate% / 12 (convert to months) / 100 Annual (convert from percent to fraction) (convert Components of Interest Components Safe Rate (about 2%) Inflation Rate (now around 4%) Risk Premium (depends on investment) Motivation Premium (usually small) Dealt with by Multiplication (1.02)(1.04)(1.09)(1.001) = 1.1574 15.74% If inflation is not included = Real Rate If inflation is included = Nominal Rate...
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