Download F 3 = 50 000(F/P,10%,3)

IENG 301/302 – Spring 2014
• Instructor: Paula Jensen
•Phone: 394 – 1770
•E-mail: [email protected]
•Office Hrs:
MW 10-11 IER 307
T/TH 8:50-9:20 CB 329
T/TH 10:30-11:00 IER 307
• Class website:
Http://pjensen.sdsmt.edu
D2L: Content
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Course Objectives
1. Solve problems in a manner expected
on the Fundamentals of Engineering
exam.
2. Evaluate personal finance choices.
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Eshenbach, T. (2011). Engineering Economy (3rd ed.). New
York NY: Oxford University Press. 591pp. ISBN 978-0-19976697-0
Engineering Notebook – 9-3/4" x 7-1/2", 5x5 quad-ruled,
80-100 pp. (approx.).
Engineering Problems Paper – 8-1/2" x 11", three hole
drilled, ruled five squares/division, 50 pp. (approx.).
FE Supplied-Reference Tables for Eng. Econ.
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http://library.sdsmt.edu/quicklink.html
Click on Knovel
Eshenbach, T. (2011). Engineering Economy (3rd
ed.). New York NY: Oxford University Press.
591pp. ISBN 978-0-19-976697-0
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
Anything you can copy, cut, staple, paste, glue,
or otherwise persuade to live permanently
within the covers of your engineering notebook
may be used on the exams …
EXCEPT old exams and other’s notebook pages.

MUST HAVE in your notebook by next class:
FE Supplied-Reference Tables for Eng. Econ.
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Go to www.ncees.org
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Exams
Study Materials
Fundamentals of Engineering
FE Supplied-Reference
 Free Preview
Read & Accept Terms
FE Supplied-Reference Handbook as multiple PDF files
 Engineering Economics
Save the file to your computer

Print these out, cut & paste into your Eng. Notebook
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Course Structure
• Grading:
Percentage
• Weighting:
•Assignments
•Interaction
•Exam I
•Exam II
•Exam III
•Exam IV
302
15%
5%
20%
20%
20%
20%
301
20%
5%
25%
25%
25%
-7
A
90-100
B
80-89
C
70-79
D
68-69
F
<68
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Policies
• Out of Class Assignments:
•Due at class (or earlier)
•No late work – drop lowest scoring HW
• Interaction Assignments
•Due in class
•Schedule to makeup if gone for
sponsored activities ahead of time.
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Assignment Structure
• Format for most problems:
•Find (objective)
•Given (organize relevant data, only)
•Cash Flow Diagram (rarely dropped)
•Soln. (steps to solve):
•Write equation in Table Factor Form
•Convert to values (or equation forms)
•Double underline answer to question
• Turn in on EP Paper
•Stapled w/ name!
•Not graded if illegible!
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

If you are writing about issues relating to the
class, make sure the subject line reads IENG
301 or 302: (subject info) so I can sort my emails and answer accordingly.
Please be professional in your e-mails. (no
texting lingo!)
•Exams:
•Open engineering notebook
•Closed text, etc.
•Put FE reference tables in notebook
•Make-up Exams
•Sponsored activities schedule ahead of time
•Otherwise, add extra weight to next midterm
•No make-up Final
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Cheating: use or attempted use of unauthorized
materials, information or study aids
Tampering: altering or interfering with evaluation
instruments and documents
Fabrication: falsification or invention of any
information
Assisting: helping another commit an act of
academic dishonesty
Plagiarism: representing the words or ideas of
another as one's own
Assignment #0
Name
Preferred name
Your SDSM&T E-mail address
Course ID
Term / Year
Your major and anticipated graduation date
Your hometown
Anything else the instructor should know
about you
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Students with special needs or requiring special
accommodations should contact the instructor
and/or the campus ADA coordinator, Jolie
McCoy, at 394-1924 at the earliest opportunity.


It evaluate the money side of
engineering problems.
It answers questions like:
When should I buy this?
 How many payments should I make?
 Does this take into account all the
stakeholders in the change?
 When does the cost benefit take place?
 Which project should we do?

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Engineering Econ Process
•
Identify alternative uses for limited resources
•
Obtain needed data
•
Analyze data to determine preferred
alternative:
(not this class)
•Screening decisions
(meets minimum acceptable?)
•Preference decisions
(Select from competing alternatives)
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Typical Decisions
• Cost reduction
(e.g., equipment, tooling, facility layout)
• Capacity expansion
(e.g., to increase production, sales)
• Equipment / Project selection
• Lease or buy decisions
• Make or buy decisions
• Equipment replacement
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Lets Get Started…
• Would you rather have $10 000 today or
$10 000 five years from now?
•
If you don’t need it right now, what could
you do with it?
•
Would it be worth the same in five years?
• Money changes value with time!
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Rate of Return
• (ROR) is the rate of change in value
earned over a specific period of time –
expressed as a percentage of the
original amount
ROR = Period Ending Amount – Period Starting Amount
Period Starting Amount
•
x 100%
The Rate of Return is a measure of how much
risk there is in an investment
Higher Risk  Higher ROR
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Rate of Return and Interest
•
The Interest Rate (i) is the percentage change
in value earned over a specific period of time.
•
For simple interest, a return is earned only on
the original amount (principal, p) each period.
•
If the principal is invested for n periods:
Total Interest Earned = (p)(n)(i)
Total Money Returned = p + (p)(n)(i)
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Compound vs Simple Interest
•
For simple interest, a return is earned only on
the original principal each period.
•
For compound interest, a return is earned on
the entire amount (principal + total interest
already earned) invested at the beginning of
the current period.
•
•
Effectively, you are also earning interest on your
interest (and on your investment principal)!
Unless explicitly stated otherwise, this course
uses compound interest.
(And so does the rest of the world!)
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•
•
•
•
Using Compound Interest to
Make Economic Decisions …
Paid $100,000 for it - 3 years ago
Don’t need it now
Option 1 – Sell it for $50,000
Option 2 – Lease it for $15,000
for 3 years. Sell it for
$10,000 at the end of
the lease.
Note:
Leases typically pay at the beginning of a time period.
Loans typically pay at the end of a time period.
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Cash Flow Diagrams
OPTION 1:
$50 k
n= 0
1
2
3 YRS
F3?
OPTION 2:
$15 k
n= 0
$15 k
1
$15 k
2
$10 k
3 YRS
F3?
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The Question
• Under what conditions would I be
indifferent between Options 1 & 2?
•
Indifferent means Economically Equivalent:
– Have the same amount of money at same
point in time, after accounting for all of
the cash flows.
– In this case, 3 years from now.
• Interest Rates…
– Percentage
– Compounding annually
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Future Value in 3 years…
I%
2.5%
5.0%
7.5%
10%
Option 1
$53,844
$57,881
$62,115
$66,550
Option 2
$57,288
$59,652
$62,094
$64,615
At what interest rate, am I indifferent
between the two options?
•
They are economically equivalent at an
interest rate just a little less than 7.5%
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Option 1
50,000 now
i = 10% compounded annually
F1 = 50,000 + 50,000 (.10) = 55,000
F2 = 55,000 + 55,000 (.10)
= 50,000 (1 + .10)2 = 60,500
F3 = 60,500 + 60,500 (.10)
= 50,000 (1 + .10)3 = 66,550
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Generalizing …
P = Present value at the
beginning of first period.
Fn = Future value at end of n
periods in the future.
Fn = P (1 + i)n
= P (F/P,i,n)
so … (F/P,i,n) = (1+i)n
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Standard Factors Used to
Solve ECON Problems
( F / P, i, n) 
( P / F, i, n) 
( F / A, i, n) 
( A / F, i, n) 
( P / A, i, n) 
( A / P, i, n) 
( P / G, i, n) 
( A / G, i, n) 
( F / G, i, n) 
Find F Given P
Find P Given F
Find F Given A
Find A Given F
Find P Given A
Find A Given P
Find P Given G
Find A Given G
Find F Given G
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Tables…
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Tables…
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… or Formulas …
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… or Formulas …
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

P is the present value at Time 0
F is the future value at Time n


(n compounding periods in the future)
i is the effective interest rate
i=?
0
1
2
F?
3
n
P
F = P(F/P,i,n)
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Tables…
=i
F3 = 50 000(F/P,10%,3) = 50 000(1.3310) = $66 550
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Formulas…
F3 = 50 000(F/P, 10%,3) = 50 000(1+.10)3 = 50 000(1.3310) = $66 550
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