1 / 17

Engineering Economics and Business

Engineering Economics and Business. ME 195A – Fall 2010 – Prof. J. Rhee. Personal Background. Rhee Thermosciences (1995 – 2002) Finalist in 2008 CA Clean Tech Open Solar Ice (with Prof. A. Basu) Ongoing collaboration with COB Neat Ideas Fair (Dec.) ZEM House (2010-2011)

erasto
Télécharger la présentation

Engineering Economics and Business

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Engineering Economics and Business ME 195A – Fall 2010 – Prof. J. Rhee

  2. Personal Background Rhee Thermosciences (1995 – 2002) Finalist in 2008 CA Clean Tech Open Solar Ice (with Prof. A. Basu) Ongoing collaboration with COB Neat Ideas Fair (Dec.) ZEM House (2010-2011) Solar Icemaker (2007-2010) Climate Solutions Class (2008)

  3. Outline of Presentation Market Research Engineering Economics Financial Projections References

  4. Market Research - Content Target Market Size (size in $$, large > $50M) Growth (aggressive growth > 20%) Major Players Trends Segments Competitive Advantages Customers All claims should be backed up by reliable and reputable information sources.

  5. Market Research - Example Solar Ice Target Market/Segment: Corporate data centers (spent $2.25B on electricity for AC in 2006) Growth: Projected to double by 2011 Major Players: Commercial HVAC (Trane, Honeywell, etc…) Trends: RE<C (Google, 2007); Sustainable IT Lab (HP, 2008); Ice Energy (2008) Competitive Advantage: no electricity required; no moving parts, no emissions/consumables Customers: Data center owners See ME senior project website for sample text

  6. Engineering Economics – Interest/Time Value of Money VARIABLES i interest per period n number of compounding periods total m number of compounding periods per year r nominal annual interest rate = i x m P present worth F future worth

  7. Engineering Economics – Interest, cont. Equivalent Expressions: F = P(1+i)n F = P(F/P,i%,n) Example 1: A company wishes to deposit a certain quantity of money now so that it will have $500 at the end of 5 years. With interest at 4% per year, the amount of the deposit is: (a) $340 (b) $400 (c) $410 or (d) $416 Example 2: What if the interest rate is 4% per year, compounded quarterly?

  8. Engineering Economics – Payments VARIABLES A Uniform payment per interest period G Uniform increasing payment per int. period Example 3: A fund used for lab maintenance earns 8% interest, compounded quarterly. If $400 is deposited every 3 months for 25 years, the amount in the fund after 25 years is nearest to: (a) $50,000 (b) $75,000 (c) $100,000 or (d) $125,000

  9. Engineering Economics – Payments, cont. Example 4: The repair costs for some handheld equipment are estimated to be $120 the first year, increasing by $30 per year after that. The amount a person needs to deposit into a bank account paying 4% interest to cover repair costs for 5 years is nearest to: (a) $500 (b) $600 (c) $700 or (d) $800

  10. Engineering Economics – Other concepts Continuous compounding: F = Pern Annual effective interest rate: ie = (1+r/m)m – 1 Inflation: use adjusted interest rate, d, in calcs d = (1+f)*(1+i), where f = inflation rate Example 5: A company’s policy is to charge 3% interest every 2 months on unpaid balances. The effective annual interest rate is: (a) $6% (b) 12% (c) 15% or (d) 19%

  11. Engineering Economics – Other concepts, cont. Example 6: An engineer purchases a building lot for $40,000 and plans to sell it in 5 years. If (s)he wants an 18% annual return, and inflation is 6% per year, the selling price must be: (a) $55,000 (b) $65,000 (c) $75,000 or (d) $125,000

  12. Financial Projections - Outline Per Year (typically for 5 years) Revenues COGS (Cost of goods sold) Gross profits = Revenues - COGS Operating expenses (e.g. sales, development, administration, depreciation, etc…) EBIT (Earnings before interest and taxes) = GP - OE Interest income Net earnings before taxes = EBIT + Interest income Taxes Net Income = Net earnings before taxes - Taxes * Good starting point: Almanac of Business and Industrial Financial Ratios and Industry Norms (Dun and Bradstreet)

  13. Financial Projections - Depreciation Almost every business must invest in some major equipment, vehicles, machinery, computers, furniture, etc… to operate. The cost of a major asset cannot be deducted as an expense the year it is acquired. It must be depreciated over its useful life. Depreciation Methods: Straight Line – uniform depreciation over lifetime MACRS – modified accelerated cost recovery system Sum of the years digits – see notes for formula

  14. Financial Projections – Taxable Income Taxable Income = EBIT + Interest income = Revenue – COGS – Operating expenses (except capital items) – Depreciation + Interest Income tax is owed on this total.

  15. Conclusions – Engineering Economics & Business Know your market Understand business implications of: interest compounding payments inflation depreciation taxable income

  16. For More Information J.A. Timmons, A. Zacharakis, and S. Spinelli, Business Plans that Work, McGraw-Hill, San Francisco, 2004 D. G. Newnan, Fundamentals of Engineering, Kaplan Education/Dearborn Financial Publishing, Chicago, 2004 G. Dieter, Engineering Design 4th ed., McGraw-Hill, San Francisco, 2009 L. Troy, Almanac of Business and Industrial Financial Ratios 40th edition, CCH, Chicago, 2008

More Related