WACC:
WACC for each source = amount/total amount *before tax cost * (1-tax rate)
Total WACC = Sum of WACC for each source
MARR > WACC
Related cost
Common stock =amount/total amount (including new common stock $) *before tax cost
Bond Stock= amount/total a
Chapter 3 Notes
Nominal Interest Rate the stated
rate, usually on an annual basis.
Effective Interest Rate the actual
interest earned (or paid) during a
time period, usually annually.
Nominal and effective interest rates
can differ because of compounding.
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Quiz2
INSY 3600- Engineering Economy- Fall 2015
1. Consider the following loan amortization schedule (partially given) for a car loan with monthly installments.
Months
Interest Paid
Principal Paid
Ending Balan
1
Rate of Return
Lecture 10
AUBURN UNIVERSITY
SAMUEL GINN COLLEGE OF
ENGINEERING
Eren Sakinc
Notation
2
ROR Rate of Return
IRR Internal Rate of Return
i*
RIC Return on Invested Capital
Rate of Return
3
Definition 1 Rate of return is defined as the interes
Internal Rate of Return
Comparing Mutually Exclusive Alternatives
Lecture 11
AUBURN UNIVERSITY
SAMUEL GINN COLLEGE OF
ENGINEERING
Eren Sakinc
1
Evaluating Projects
2
= 0
>
=
<
=
Relationship to Present Worth
3
$3,000
Reject
Accept
$2,500
Pr
Present Worth Analysis
Comparing Mutually Exclusive Projects
Lecture 7
AUBURN UNIVERSITY
SAMUEL GINN COLLEGE OF
ENGINEERING
Eren Sakinc
1
Present Worth (Net Present Value)
2
PW Present Worth
NPV Net Present Value
Principle Calculate the equivalent net sur
1
Conventional and Discounted Payback Period
Lecture 6
AUBURN UNIVERSITY
SAMUEL GINN COLLEGE OF
ENGINEERING
Eren Sakinc
Payback Period
2
Expanding the companys manufacturing plant with
the new high tech equipment
Investment Today = $1.8M
Expected Total
1
Debt Management
Lecture 5
AUBURN UNIVERSITY
SAMUEL GINN COLLEGE OF
ENGINEERING
Eren Sakinc
Credit Card Debt
2
Annual Fees
Annual Percentage Rate
Grace Period
Credit Card Debt
3
Effective Period
Card Limit
Required Min Payment
How long to pay off
Amortiz
1
Market Interest Rates
Lecture 4
AUBURN UNIVERSITY
SAMUEL GINN COLLEGE OF
ENGINEERING
Eren Sakinc
Nominal and Effective Interest Rates
2
If payments occur more frequently than annual
If interest period is other than annual
Structure of commercial loan
1
Economic Equivalence
Lecture 3
AUBURN UNIVERSITY
SAMUEL GINN COLLEGE OF
ENGINEERING
Eren Sakinc
Cash Flow Notation
2
P Principal (Initial Amount)
i Interest Rate (Stated per Period)
n Interest Period (Usually Annually)
PV or P
FV or F
A
G
g
Present Valu
1
Economic Equivalence
Lecture 3
AUBURN UNIVERSITY
SAMUEL GINN COLLEGE OF
ENGINEERING
Eren Sakinc
Principles of Engineering Economics #1
2
A nearby $ is worth more than a distant $.
TODAY
FUTURE
Time Value of Money
3
Winner of $25.6M Powerball Jackpot: Ji
1
Introduction to Engineering Economic Decisions
Lecture 1
AUBURN UNIVERSITY
SAMUEL GINN COLLEGE OF
ENGINEERING
Eren Sakinc
Engineering Economic Decisions
2
Using engineering judgment to arrive a workable
and optimal design
People make decisions in thei
INSY 3600 /002 Engineering Economy Spring 2015
Course Info
Classroom
T/R, 12:30 1:45PM @ Parker Hall, Room 249
Bulletin Description
Principles required in engineering economic studies
Course Content and Objectives
A high degree of competence in making qua