kuliah 1 - blankchapter_1-edit

8/14/2019 Kuliah 1 - Blankchapter_1-Edit

1/69

Copyright The McGraw-Hill Companies, Inc. Permission required for reproduction or display.

1Blank & Tarquin: 5th Edition. Ch. 1 Authored by: Dr. Don Smith, Texas A&M University.

CHAPTER I

FOUNDATIONS OFENGINEERING ECONOMY

McGrawHill

ENGINEERING ECONOMYFifth Edition

Blank and Tarquin


2/69



1. Foundations: Overview

1. Questions

2. Decision Making

3. Study Approach

4. Interest Rate

5. Equivalence

6. Simple and Compound Interest


3/69



Why Engineering Economy isImportant to Engineers (and

other professionals)

McGrawHill


Blank and Tarquin


4/69



Definition

ENGINEERING ECONOMY IS INVOLVED WITH

THE FORMULATION, ESTIMATION, ANDEVALUATION OF ECONOMIC OUTCOMES

WHEN ALTERNATIVES TO ACCOMPLISH ADEFINED PURPOSE ARE AVAILABLE.

ENGINEERING ECONOMY IS INVOLVED WITH THE

APPLICATION OF DEFINED MATHEMATICALRELATIONSHIPS THAT AID IN THE COMPARISON

OF ECONOMIC ALTERNATIVES


5/69


5

Definition

Ekonomi Teknik adalah ilmu yang

mempelajari penerapan aspek-aspek ekonomidalam engineering, yang mengevaluasi

perbandingan antara biaya dan manfaat (aruskas) yang ditimbulkan dari suatu alternatif.

Ekonomi Teknik adalah teknik analisa untuk

mengevaluasi kelayakan dari sistem, produk, ataujasa, dalam kaitannya dengan nilai uang.


6/69



Ekonomi Teknik digunakan untukpengambilan keputusan manakala terdapat

beberapa alternatif rencana yang telah

memenuhi persyaratan teknisdan masing-masing membutuhkan suatu nilai investasi,sehingga perlu dipilih manakah yang lebih

ekonomis.

Jadi Ekonomi Teknik akan dibutuhkan padasaat aspek ekonomi menjadi kriteria

pemilihan yang utama.

Kapan ?


7/69



Mengapa ?

Engineers harus memahami dunia ekonomi karena :

adanya keterbatasan dana (capital)

Capital tidak tak terbatas

Capital bukan milik perusahaan

Capital milik pemilik perusahaan

Capital is not freeit has a cost


8/69



Pengetahuan tentang Ekonomi Tekniksangat anda butuhkan untuk dapat

membuat perbandingan ekonomi dari

berbagai alternatif permasalahan baikdalam pekerjaan (pemerintah maupun

swasta) maupun kehidupan sehari-hari.

Mengapa ?


9/69



CHAPTER I Section 1.2

Peran Ekonomi Teknik dalamDecision Making

McGrawHill


Blank and Tarquin


10/69



Role of Engineering Economy

Ekonomi Teknik hanyalah alat untukpenentuan dalam suatu pengambilan

keputusan (decision making).


11/69



Problem-Solving Approach

1. Understand the Problem

2. Collect all relevant data/information

3. Define the feasible alternatives

4. Evaluate each alternative

5. Select the best alternative

6. Implement and monitor

C i h Th M G Hill C i I P i i i d f d i di l


12/69



Section 1.2 Problem-Solving Approach







Major Role ofEngineeringEconomy

C i ht Th M G Hill C i I P i i i d f d ti di l


13/69







4. Evaluate each alternative5. Select the best alternative


One of the moredifficult tasks

C i ht Th M G Hill C i I P i i i d f d ti di l


14/69









6. Implement and monitor Where the majortools of Engr.

Economy areapplied

Copyright The McGraw Hill Companies Inc Permission required for reproduction or display


15/69









6. Implement and monitor ToolsPresent Worth, Future Worth

Annual Worth, Rate of ReturnBenefit/Cost, Payback,

Capitalized Cost, Value Added



16/69



Time Value of Money

Money can make money if Invested

Bila kita mengivestasikan uang, kita berharapuang kita akan menjadi lebih besar di masa

depan Berkaitan erat dengan interest rate

The change in the amount of money over agiven time period is called the time value ofmoney; by far, the most important conceptin engineering economy



17/69



Performing and EngineeringEconomy Study

McGrawHill


Blank and Tarquin

Copyright The McGraw-Hill Companies Inc Permission required for reproduction or display


18/69



Performing a Study

1. Identifikasi alternatifalternatifpenyelesaian dari permasalahan yangada.

2. Kumpulkan data & informasi

3. Estimasi cash flow dari setiap alternatif

4. Analisa masing-masing cash flow daritiap alternatif



19/69



Pemilihan Alternatif

Untuk menganalisa, diperlukan:

Konsep time value of $$

Interest Rate

Ukuran2nilai ekonomi

5. Lakukan evaluasi dgn pembobotan danmemperhitungkan faktor parameter2

nonekonomi

6. Pilih, Jalankan, dan monitor



20/69

Copyright The McGraw Hill Companies, Inc. Permission required for reproduction or display.


Parameter-Parameter yang Dibutuhkan

Nilai investasi awal

Perkiraan durasi proyek

Estimasi cash flows (pendapatan,pengeluaran, dan salvage values)

Interest rate (Tingkat Suku Bunga)

Inflasi dan Pajak

Semua parameter-parameter diataskemudian disusun dalam sebuah Cash Flow



21/69



Cash Flows

Positive cash flows adalah perkiraanaliran uang yang masuk ke perusahaan(revenue, salvage values, dll)

Negative cash flows adalah perkiraanaliran uang yang keluar dari perusahaanBiaya Investasi, Operasional &Maintenance, dan Pajak)



22/69



Taxes

A realistic economic analysis must assessthe impact of taxes.

Called andAFTER-TAXcash flow analysis Not considering taxes is called a BEFORE-

TAXCash Flow analysis.



23/69

py g p , q p p y


Taxes

A Before-Tax cash flow analysis (while notas accurate) is often performed as apreliminary analysis.

A final, more complete analysis should beperformed using an After-Tax analysis

Both are valuable analysis approaches



24/69

py g p , q p p y


1.9 MinimumAttractive Rate of Return

An investment is a commitment of funds andresources in a project with the expectation ofearning a return over and above the worth of

the resources that were committed. Economic Efficiency means that the returns

should exceed the inputs.

In the for-profit enterprise, economic

efficiencies greater than 100% are required!



25/69

py g p q p p y


1.9 The MARR

A firms financial managers set a minimuminterest rate that that all accepted projectsmust meet or exceed.

The rate, once established by the firm istermed the Minimum Attractive Rate of Return(MARR).

The MARR is expressed as a percent per year.

Numerous models exist to aid a firms financialmanagers in estimating what this rate shouldbe in a given time period.



26/69


Cash Flows: Their Estimationand Diagramming

McGrawHill


Blank and Tarquin



27/69


1.10 Important TERMS

CASH INFLOWS

Money flowing INTO the firm from outside

Revenues, Savings, Salvage Values, etc.

CASH OUTFLOWS

Disbursements

First costs of assets, labor, salaries, taxespaid, utilities, rents, interest, etc.



28/69


1.10 Cash Flows

For many practical engineering economyproblems the cash flows must be:

Assumed known with certainty

Estimated

A range of possible realistic values provided

Generated from an assumed distribution and

simulated



29/69


1.10 Net Cash Flows

A NET CASH FLOWis

Cash InflowsCash Outflows

(for a given time period) We normally assume that all cash flows

occur:

At the ENDof a given time period

End-of-Period Assumption



30/69


1.10 End-of-Period Assumption

END-OF-PERIOD Convention

ALL CASH FLOWS ARE ASSUMED TO OCCUR ATTHE END OF AN INTEREST PERIOD EVEN IF THE

MONEY FLOWS AT TIMES WITHIN THEINTEREST PERIOD.

THIS IS FOR SIMPLIFICATION PURPOSES



31/69


1.10 The Cash Flow Diagram: CFD

Extremely valuable analysis tool

First step in the solution process

Graphical Representation on a time scaleDoes not have to be drawn to exact scale

But, should be neat and properly labeled

Required on most in-class exams and partof the grade for the problem at hand



32/69


1.10 Example Cash Flow diagrams

Assume a 5-year problem

The basic time line is shown below

Now is denoted as t = 0



33/69


1.10 Displaying Cash Flows

A sign convention is applied

Positive cash flows are normally drawnupward from the time line

Negative cash flows are normally drawndownward from the time line



34/69


1.10 Sample CF Diagram

Positive CF at t = 1

Negative CFs at t = 2 & 3



35/69


1.10 Problem Perspectives

Before solving, one must decide upon theperspective of the problem

Most problems will present two perspectives

Assume a borrowing situation; for example:

Perspective 1: From the lenders view

Perspective 2: From the borrowers view

Impact upon the sing convention



36/69


1.10 LendingBorrowing Example

Assume $5,000 is borrowed and payments are$1,100 per year.

Draw the cash flow diagram for this

First, whose perspective will be used?

Lenders or the Borrowers ? ? ?

Problem will infer or you must decide.



37/69


1.10 LendingBorrowing

From the Lenders Perspective

0 1 2 3 4 5

-$5,000

A = +$1,100/yr



38/69


1.10 Lending - Borrowing

From the Borrowers Perspective

0 1 2 3 4 5

P = +$5,000

A = -$1,100/yr



39/69


1.10 Example 1.17

A father wants to deposit anunknownlump-sum amount into an investmentopportunity 2 years from nowthat is large

enough to withdraw $4,000 per year for stateuniversity tuition for 5 years starting 3 yearsfrom now.

If the rate of return is estimated to be 15.5%

per year, construct the cash flow diagram.



40/69


1.10 Example 1.17 CF Diagram



41/69


Interest Rate and Rate ofReturn

McGrawHill


Blank and Tarquin



42/69


Interest Rate

INTEREST -MANIFESTATION OF THETIME VALUE OF MONEY. THE AMOUNTPAID TO USE MONEY.

INVESTMENT

INTEREST = VALUE NOW - ORIGINALAMOUNT

LOAN

INTEREST = TOTAL OWED NOW - ORIGINALAMOUNT

RENTAL FEE PAID FOR THE USE OF SOMEONEELSES MONEYEXPRESSED AS A %



43/69


Interest Rate

INTEREST RATE- INTEREST PERTIME UNIT

AMOUNTORIGINAL

UNITTIMEPERINTERESTRATEINTEREST



44/69


Interest Rates and Returns

Interest can be viewed from twoperspectives:

Lending situation

Investing situation



45/69


Interest - Lending

You borrow money (renting someoneelse's money)

The lender expects a return on the moneylent

The return is measured by application ofan interest rate



46/69


InterestLending Example 1.3

Example 1.3

You borrow $10,000 for one full year

Must pay back $10,700 at the end of oneyear

Interest Amount (I) = $10,700 - $10,000

Interest Amount = $700 for the year

Interest rate (i) = 700/$10,000 = 7%/Yr



47/69


Interest Rate - Notation

For 1.3 the interest rate is..

Expressed as a per cent per year

Notation

I= the interest amount is $

i= the interest rate (%/interest

period)

N= No. of interest periods (1 for thisproblem)



48/69


InterestBorrowing (Ex 1.3)

The interest rate (i) is 7% per year

The interest amount is $700 over one year

The $700 represents the return to the

lender for this use of his/her funds for oneyear

7% is the interest rate charged to the

borrower

7% is the return earned by the lender



49/69


InterestExample 1.4

Borrow $20,000 for 1 year at 9% interestper year

i = 0.09 per year and N = 1 Year

Pay $20,000 + (0.09)($20,000) at end of1 year

Interest (I) = (0.09)($20,000) = $1,800

Total amt. paid one year hence

$20,000 + $1,800 = $21,800



50/69


1.4 InterestExample 1.4

Note the following

Total Amount Due one year hence is

($20,000) + 0.09($20,000)

=$20,000(1.09) = $21,800

The (1.09) factor accounts for the repaymentof the $20,000 and the interest amount

This will be one of the important interestfactors to be seen later



51/69


1.4 InterestInvesting Perspective

Assume you invest $20,000 for one year in aventure that will return to you, 9% per year.

At the end of one year, you will have:

Original $20,000 back

Plus..

The 9% return on $20,000 = $1,800

We say that you earned 9%/year on the investment!This is your RATE of RETURNon the investment


if h di i


52/69


Equivalence

McGrawHill


Blank and Tarquin



53/69


EQUIVALENCE

Example

You travel at 68 miles per hour

Equivalent to 110 kilometers per hour

Thus:

68 mph is equivalent to 110 kph

Using two measuring scales

Miles and Kilometers



54/69


EQUIVALENCE

Is 68 equal to 110?

No, not in terms of absolute numbers

But they are equivalent in terms of thetwo measuring scales

Miles

Kilometers



55/69


ECONOMIC EQUIVALENCE

Economic Equivalence

Two sums of money at two differentpoints in time can be made economicallyequivalent if:

We consider an interest rate and,

No. of time periods between the twosumsEquality in terms of Economic Value



56/69


Equivalence Illustrated

Return to Example 1.4

Diagram the loan (Cash Flow Diagram)

The companys perspective is shown

T=0 t = 1 Yr

$20,000 is

received here

$21,800 paidback here



57/69



T=0 t = 1 Yr

$20,000 is

received here

$21,800 paidback here

$20,000 now is economically equivalent to $21,800one year from now IF the interest rate is set toequal 9%/year


58/69



59/69



If you were told that the interest rate is9%....

Which is worth more?

$20,000 now or

$21,800 one year from now?

The two sums are economically equivalentbut not numerically equal!

Read overExample 1.6



60/69



To have economic equivalence you mustspecify:

Timing of the cash flows

An interest rate (i%per interest period)

Number of interest periods (N)

Read overExample 1.6



61/69


Simple and Compound Interest

Two types of interest calculations

Simple Interest

Compound Interest

Compound Interest is more commonworldwide and applies to most analysis

situations



62/69


Simple and Compound Interest

Simple Interest

Calculated on the principal amount only

Easy (simple) to calculate

Simple Interest is:

(principal)(interest rate)(time)

$I = (P)(i)(n)


McENGINEERING ECONOMY Fifth Edition


63/69


CHAPTER I - Summary

Summary of Important Points

McGrawHill


Blank and Tarquin



64/69


Chapter Summary

Engineering Economy:

Aplikasi dari kriteria & faktor-faktor

ekonomi untuk mengevaluasialternatif2 yg ada denganmempertimbangkan nilai waktu dari

uang (interest and time)



65/69


Chapter Summary

Engineering Economy Study:

Involves modeling the cash flows

Computing specific measures ofeconomic worth

Using an interest rate(s)

Over a specified period of time



66/69


Chapter Summary

The MARR

The MARR is a reasonable rate of returnestablished as a hurdle rate to determine if an

alternative is economically viable.

The MARR is always higher than a returnfrom a safe investment.


h


67/69


Chapter Summary

Attributes of Cash Flows

Difficulties with their estimation.

Difference between estimated and actual

value.

End-of-year conventionfor cash-flow

location.


Ch S


68/69


Chapter Summary

Attributes of Cash Flows

Net cash flow computation.

Different perspectives in determining the

cash-flow sign convention.

Construction of a cash-flow diagram.

Introduction to spreadsheet analysis



69/69

End of Chapter I Lecture Set

kuliah 1 - blankchapter_1-edit

Documents