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ENGR 3360U Winter 2014

Unit 8

Picking the Best Choice

Dr. J. Michael Bennett, P. Eng., PMP,

UOIT,

Version 2014-I-01

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Unit 8 Picking the Best Choice

Change Record

2014--01 nitia! Creation

"e#t Re$erence Cha%ter 8

2014--18-2 &r' (')' Bennett* P'Eng'* P)P ENGR 3360U Eng Eco

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Co+rse ,+t!ine

1' Engineering Econoics

2' Genera! Econoics

1' )icroeconoics

2' )acroeconoics

3' )one. and the Bank o$Canada

3' Engineering Estiation

4' nterest and E/+ia!ence

' Present Worth na!.sis

6' nn+a! Cash !o

5' Rate o$ Ret+rn na!.sis

8' Picking the Best Choice

' ,ther Choosing "echni/+es

10' Uncertaint. and Risk

11' ncoe and &e%reciation

12' $ter-ta# Cash !os

13' Re%!aceent na!.sis

14' n$!ation1' )RR 7e!ection

16' P+!ic 7ector ss+es

15' What Engineering sho+!d kno

ao+t cco+nting

18' Persona! Econoics $or the

Engineer

2014--1 &r' (')' Bennett* P'Eng'* P)P ENGR 3360U Eng Eco8-3

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Unit 8 Road )a%

9 8'1 Gra%hica! techni/+es to is+a!i:e %ro!es

9 8'2 ncreenta! na!.sis $or +!ti%!ea!ternaties


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8'1 Gra%hica! %%roach

9 When there are +!ti%!e a!ternaties* a conenienta. to +nderstand hat is ha%%ening is .

gra%hing;

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E#a%!e 8-1

"he eng soc is +i!ding a snack cart to raise

one.' "o sere 100 c+stoers %er ho+r

o+!d cost >10*310 and to sere 10*

>13*300' "he net ann+a! incoe $or the!oer ca%acit. is >3*300 and the higher*

>4*000' a$ter .ears the cart has no sa!age

a!+e' What interest rate sho+!d e +sed todecide?


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E#a%!e 8-1

9 "he $o!!oing e/+ations ho!d;

PW!o4 @ ->10*310 A >3*300P* i* D

PWhigh @ ->13*400 A >4000P* i* D


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E#a%!e 8-1 Gra%h

9 "he gra%h o$ those e/+ations %reio+ss!ideD ers+s interest rate;


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E#a%!e 8-1 Gra%h E#%!ained

9 "o a#ii:e the PW* the choice eteenthe a!ternaties is de$ined . here the

c+res intersect 4'3D'

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Choice "a!e

nterest Rate Best Choice

0 H i H 4'3 Iigh-ca%acit. cart

4'3 H i H 18 Jo-ca%acit. cart

18 H i &o nothing


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!ternaties

9 "he gra%h a%%roach $+rther enhances+nderstanding hen dea!ing ith ore

than to a!ternaties'

9 t ecoes iediate!. a%%arent hereeach a!ternatie %roides a!+e oer the

others'

9 EUC or EUW can a!so e +sed $or thegra%hs instead o$ PW'


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E#a%!e 8'4

%ress+re esse! can e ade o+t o$ rass*stain!ess stee! or titani+' "he $irst cost and

e#%ected !i$e $or each are;

rass 77 "itani+

Cost 100K 15K 300K

Ji$e 4 10 2C @ $irstcost P* i * !i$eD


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E#a%!e 8-49 "he gra%hed res+!ts o$ e#a%!e 8-4;


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Gra%h E#a%!e 8-4 E#%!ained

9 "he gra%h shos the RR $or each %air o$a!ternaties $ro highest to !oest initia! cost'

9 "he gra%h shos the rangesD here each

a!ternatie sho+!d e se!ected

nterest Rate Best Choice

0 H i H 6'3 "itani+

6'3 H i H 1'3 7tain!ess 7tee!

1'3 H i Brass


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E#a%!e 8'6

Iere are +t+a!!. e#c!+sie a!ternaties* a!!ith 20 .ear !ies' Pre%are a choice ta!e'

B C & E

C,7" 4K 2K 6K 1K K

B 63 410 561 115 58

LRRC-D; 6K-4K@ 561-63DP* i* 20D

i @ 2


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Gra%hing* contd'

9 E#a%!e 8-6 gra%h shoing an. a!ternaties


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E#a%!e 8-6 E#%!ained

9 "he gra%h c!ear!. shos in this case thata!ternaties & and E are neer %art o$ the

so!+tion'9 "he Mdo-nothing a!ternatie is a %ossii!it.

d+e to the %resent orth o$ a!! a!ternaties

going e!o 0 i$ )RR is aoe 20'


i 8 i ki h Ch i

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Choice ta!e

$ )RR 20 do nothing

$ 20 )RR '6 se!ect B

$ '6 )RR 2 se!ect

$ 2 )RR se!ect C


U i 8 Pi ki h B Ch i

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8'2 E!eents o$ ncreenta! Rate o$ Ret+rn

1' Be s+re a!! the a!ternaties are identi$ied'2' Constr+ct an NPW or EUW gra%h

shoing a!! a!ternaties %!otted on the sae

a#es'3' E#aine the !ine o$ a#i+ a!+es and

deterine hich a!ternaties create it* and

oer hat range'

4' &eterine the changeoer %oints'

' Create a choice ta!e'


U i 8 Pi ki h B Ch i

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7+ar.

9 na!.sis )ethods;

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7+ar.* contd'

9 Rate o$ Ret+rn ana!.sis eteen a!ternaties re/+iresincreenta! rate o$ ret+rn'

9 t ecoes ore co%!e# hen ore than to

a!ternaties are aai!a!e'9 Constr+cting gra%hs he!%s is+a!i:e and iediate!.

recogni:e the constraints o$ the a!ternaties'

9 Gra%hing a!!os one to see the range o$ a!+eshere each a!ternatie %roides the greatest a!+eand choices are a!+es'

2014 18 21 &r ( ) Bennett PEng P)P ENGR 3360U Eng Eco

3360 unit 08 2014-i-01

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