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4 Cards in this Set
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Principles of Engineering Economic Analysis: 1-3 Note: non-monetary considerations may result in a different alternative being chosen. |
1. Money has a time value. -We prefer money sooner than later. 2. Make economically justified investments. -Evaluate future benefits or reduced costs that will be realized, & compare with investment costs. 3. Choose the mutually exclusive investment that maximizes economic worth. |
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Principles of Engineering Economic Analysis: 4-7 |
4. Two investment alternatives are equivalent if they have the same economic worth. -Cash flows can be equally worthy, even with different values in different years. 5. Marginal revenue must exceed marginal cost. -Do not invest unless added revenues are > added costs. 6. Keep investing while added incremental investments yield returns > investor’s TVOM. -Use someone else’s $ if you can earn more by investing than you have to pay for it. 7. Consider only differences in cash flows among investment alternatives. -Common costs or revenues are ignored. |
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Principles of Engineering Economic Analysis: 8-10 |
8. Compare investment alternatives over a common period of time. -Do not use different time periods, even if alternatives have different life-cycles. 9. Risks & returns tend to be positively correlated. -The higher the risks, the greater the returns need to be to justify investment. 10. Past costs are irrelevant, unless they impact future costs. -Prior investments are completely ignored in engineering economic analysis. -The only thing that matters is future costs and benefits. -Unless it is government spending because the public gets mad |
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Engineering Economic Analysis |
Systematic evaluation of the economic merits of proposed solutions to engineering problems |
