IE5003 Cost Analysis and Engineering
Economy
Dr. Michel-Alexandre CARDIN
Assistant Professor
Department of Industrial &
Systems Engineering
Announcements
o Suggested readings in de Neufville and Scholtes
(2011) Ch. 3-7
o Ton

1
INFLATION
Chapter 8
2
Outline
Inflation
Actual dollars versus real dollars
Market interest rates versus real interest rates
3
Inflation
Prices generally increase over time.
Maximum bus fare (aircon) in Singapore
1990: $1.20
2000: $1.50
Why do pri

1
CAPITAL FINANCING
Chapter 13
2
Outline
Sources of capital
Loans
Bonds
Shares
Weighted average cost of capital
Minimum attractive rate of return
3
Capital
Capital is critical to the operations of a business.
For example, if a restaurant owner is

1
TIME VALUE OF MONEY
Chapter 4
2
Outline
Interest
Cash flow diagrams
Equivalence
Interest formulas
3
Time value of money
Generally, money is preferred now, as opposed to a
same amount later.
One can spend it now or one can deposit it in a bank and

1
INFLATION
Chapter 8
2
Outline
Inflation
Actual dollars versus real dollars
Market interest rates versus real interest rates
3
Inflation
Prices generally increase over time.
Maximum bus fare (aircon) in Singapore
1990: $1.20
2000: $1.50
2011: $1.

1
PROJECT EVALUATION
Chapters 5 and 6
2
Outline
Single project evaluation
Selecting between multiple projects
3
Single project evaluation
Present worth method
Internal rate of return method
Payback period method
4
Present worth method
The present wo

1
TAXES AND
DEPRECIATION
Chapter 7
2
Outline
Tax
Depreciation
After-tax cash flow and computations
Singapore and US tax practices
3
Tax
Most countries impose taxes on corporations operating and
individuals residing within its borders.
The money is u

IE5003 Cost Analysis and Engineering
Economy
Dr. Michel-Alexandre CARDIN
Assistant Professor
Department of Industrial
& Systems Engineering
IntroducCon
Slides adapted from Sullivan et al. (2012, 2003), Park
(2011, 2002), Cha

CHAPTER 7 TAXES AND DEPRECIATION
$1,950
= 0.0325 = 3.25%
$60,000
Slide 8
Slide 9
$42,350
= 0.132 = 13.2%
$320,000
If taxable income is $320,000, effective tax rate is:
To find taxable income such that effective tax rate is 17%:
$42,350+0.2
$320,000+
= 0.1

1
TIME VALUE OF MONEY
Chapter 4
2
Outline
Interest
Cash flow diagrams
Equivalence
Interest formulas
3
Time value of money
Generally, money is preferred now, as opposed to a
same amount later.
One can spend it now or one can deposit it in a bank and

1
PROJECT EVALUATION
Chapters 5 and 6
2
Outline
Single project evaluation
Selecting between multiple projects
3
Single project evaluation
Present worth method
Internal rate of return method
Payback period method
4
Present worth method
The present wo

IE5003 Cost Analysis and Engineering
Economy
Dr. Michel-Alexandre CARDIN
Assistant Professor
Department of Industrial
& Systems Engineering
Admin
Department of Industrial
& Systems Engineering
Welcome!
o It is a pleasure to be w

Time Value of Money Computations with MS Excel 2010
Functions:
1.
2.
3.
4.
5.
FV Computes the future value of a simple investment
PV Computes the present value of a simple investment
PMT Converts a cash flow into equal periodic payments
NPV Computes the p

CHAPTER 4 TIME VALUE OF MONEY
Interest each year is $4.5 0.0325 = $146,250
Slide 4
Total interest = $146,250 10 = $1,462,500
Total amount owned = $4.5 + $1,462,500 = $5,962,500
Slide 6
$4.5 1.0325 = $4,646,250
The amount that is owed at the end of the fir

IE 5203 Decision Analysis
http:/www.ise.nus.edu.sg/course/ie5203/
2015
POH Kim Leng, Ph.D.
Associate Professor
Department of Industrial & Systems Engineering
National University of Singapore
Kent Ridge, Singapore 119260
[email protected]
http:/www.ise