1 ieng 301/302 – spring 2014 instructor: paula jensen phone: 394 – 1770 e-mail:...
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IENG 301/302 – Spring 2014
IENG 301/302 – Spring 2014
• Instructor: Paula Jensen• Phone: 394 – 1770• E-mail: [email protected]• Office Hrs:
MW 10-11 IER 307T/TH 8:50-9:20 CB 329T/TH 10:30-11:00 IER 307
• Class website:Http://pjensen.sdsmt.eduD2L: Content
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Course ObjectivesCourse Objectives
1. Solve problems in a manner expected on the Fundamentals of Engineering exam.
2. Evaluate personal finance choices.
Required Materials Eshenbach, T. (2011). Engineering Economy
(3rd ed.). New York NY: Oxford University Press. 591pp. ISBN 978-0-19-976697-0
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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Book Link
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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Engineering Notebook
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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FE Supplied-Reference Tables
Go to www.ncees.org 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 StructureCourse Structure• Grading: Percentage
• Weighting: 302 301
•Assignments 15%20%
• Interaction 5% 5%
•Exam I 20%25%
•Exam II 20%25%
•Exam III 20%25%
•Exam IV 20% --
Grading Scale
A 90-100
B 80-89
C 70-79
D 68-69
F <68
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PoliciesPolicies• 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 StructureAssignment 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!
Email Policy:
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 e-mails and answer accordingly.
Please be professional in your e-mails. (no texting lingo!)
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•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
Academic Honesty
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
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Assignment #0Assignment #0
Name Course IDPreferred name Term / YearYour SDSM&T E-mail address
Your major and anticipated graduation dateYour hometown
Anything else the instructor should know about you
ADA
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.
What is Engineering Econ?
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
Engineering Econ Process
• Identify alternative uses for limited resources
• Obtain needed data (not this class)
• Analyze data to determine preferred alternative:
•Screening decisions(meets minimum acceptable?)
•Preference decisions (Select from competing alternatives)
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Typical DecisionsTypical 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…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 ReturnRate 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
Period Ending Amount – Period Starting AmountPeriod Starting Amount
• The Rate of Return is a measure of how much risk there is in an investment
Higher Risk Higher ROR
x 100%ROR =
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Rate of Return and Interest
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 Money Returned = p + (p)(n)(i)
Total Interest Earned = (p)(n)(i)
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Compound vs Simple Interest
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 …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 DiagramsCash Flow Diagrams
$15 k
0n =
$15 k
1
$15 k
2
$10 k
3YRS
OPTION 2:
$50 k
0n = YRS
OPTION 1:
31 2
F3?
F3?
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The QuestionThe 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…
Future Value in 3 years…
I% Option 1 Option 22.5% $53,844 $57,2885.0% $57,881 $59,6527.5% $62,115 $62,09410% $66,550 $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 1Option 1
50,000 nowi = 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 …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
Standard Factors Used to Solve ECON
Problems( F / P, i, n) Find F Given P( P / F, i, n) Find P Given F( F / A, i, n) Find F Given A( A / F, i, n) Find A Given F( P / A, i, n) Find P Given A( A / P, i, n) Find A Given P ( P / G, i, n) Find P Given G( A / G, i, n) Find A Given G( F / G, i, n) Find F Given G
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Tables…Tables…
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Tables…Tables…
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… or Formulas …… or Formulas …
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… or Formulas …… or Formulas …
Future Given Present 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
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0 n
P
F ?
1 2 3
F = P(F/P,i,n)
i=?
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Tables…Tables…
= i
F3 = 50 000(F/P,10%,3)F3 = 50 000(F/P,10%,3) = 50 000(1.3310)F3 = 50 000(F/P,10%,3) = 50 000(1.3310) = $66 550
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Formulas…Formulas…
F3 = 50 000(F/P, 10%,3)F3 = 50 000(F/P, 10%,3) = 50 000(1+.10)3F3 = 50 000(F/P, 10%,3) = 50 000(1+.10)3 = 50 000(1.3310)F3 = 50 000(F/P, 10%,3) = 50 000(1+.10)3 = 50 000(1.3310) = $66 550