ENGINEERING ECONOMICS II Ⅰ VVESTMENT ANALYSIS o Companies(and individuals invest money in order to earn money ◆ examples E Build a factory to make washing machines and dryers E Open a laundromat BWrite a novel what is being invested here ?) E Get a degree in chemical engineering 10/1899 Engineering economics ll
10/18/99 Engineering Economics II 1 ENGINEERING ECONOMICS II INVESTMENT ANALYSIS t Companies (and individuals) invest money in order to earn money t Examples ðBuild a factory to make washing machines and dryers ðOpen a laundromat ðWrite a novel (what is being invested here?) ðGet a degree in chemical engineering
PROJECT LIFE CYCLE ◆ nitial investment E Purchase of productive facilities x Land and buildings a Equipment E Startup funds Working capital Project life E Start up-come up to full potential OPerate at full potential until end of project life 10/1899 Engineering economics ll
10/18/99 Engineering Economics II 2 PROJECT LIFE CYCLE t Initial Investment ðPurchase of productive facilities X Land and buildings X Equipment ðStartup funds ðWorking capital t Project Life ðStart up - come up to full potential ðOperate at full potential until end of project life
PROJECT CASH FLOW DIAGRAM Perfect CASH FLOW Startup Investment Period Payout Time K TIME Real starte 10/1899 Engineering economics ll 3
10/18/99 Engineering Economics II 3 Payout Time Investment Period CASH FLOW TIME Perfect Startup Real Startup Project Life PROJECT CASH FLOW DIAGRAM
PROJECT ACCOUNTING I ◆ Gross Profit (aka Profit Before Taxes or PBt) Pbt=Sales revenue-Operating Expenses ◆ Operating Expenses Raw materials UTilities → Labor E Maintenance → Overhead 10/1899 Engineering economics ll
10/18/99 Engineering Economics II 4 PROJECT ACCOUNTING I t Gross Profit (aka Profit Before Taxes or PBT) PBT = Sales Revenue - Operating Expenses t Operating Expenses ðRaw materials ðUtilities ðLabor ðMaintenance ðOverhead
PROJECT ACCOUNTING II ◆ Net profit (aka profit After Taxes or pat) PAT=(1-Trate)(PBT-Depreciation where Trate= corporate income tax rate(48%) ◆ Depreciation Allowance for the depreciation of the fixed investment (equipment wears out, etc. Depreciation=/Fixed Investment //Nd "Straight line” where Nd= depreciation period 10/1899 Engineering economics ll
10/18/99 Engineering Economics II 5 PROJECT ACCOUNTING II t Net Profit (aka Profit After Taxes or PAT) PAT = (1 - Trate) (PBT - Depreciation) where Trate = corporate income tax rate (~ 48%) t Depreciation Allowance for the depreciation of the fixed investment (equipment wears out, etc. Depreciation = [Fixed Investment]/Nd “Straight line” where Nd = depreciation period