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• The payback period is often misleading as it can make a project with a longer payback period but higher rate of return appear more attractive than a project with a shorter payback period but lower rate of return.
• Using the payback period to make investment decisions should generally be avoided except as a secondary measure of how quickly invested capital will be recovered, which is an indicator of project risk.
• The simple payback and discounted payback period methods tell us how long it takes cash inflows from a project to accumulate to equal (or exceed) the project's cash outflows.
• The longer it takes to recover invested monies, the greater is the perceived riskiness of a project.
• Endocrine disorders can result from abnormalities in the production, secretion, transport, metabolism, or action of hormones.
• The payback period is often misleading as it can make a project with a longer payback period but higher rate of return appear more attractive than a project with a shorter payback period but lower rate of return.
• Using the payback period to make investment decisions should generally be avoided except as a secondary measure of how quickly invested capital will be recovered, which is an indicator of project risk.
• The simple payback and discounted payback period methods tell us how long it takes cash inflows from a project to accumulate to equal (or exceed) the project's cash outflows.
• The longer it takes to recover invested monies, the greater is the perceived riskiness of a project.
• The objective of Chapter 5 is to discuss and critique contemporary methods for determining project profitability.
• There is a rule-of-thumb that states if the weight of an automobile can be reduced by 10%, then 6% of the annual cost of gasoline can be saved.
• Light weight and high strength carbon fibers costing about $15-$20 per pound are currently being considered to replace the metal in automobile and aerospace applications.
• Engineers believe they can economically reduce the weight of an automobile by substituting carbon fibers for metal to save 20% to 30% on fuel consumption each year.
• Carbon fibers can also be used in structures such as stronger wind turbines.
• After working through this chapter, you will be able to evaluate the economic trade-off between annual fuel savings and up-front cost of carbon fibers and to determine whether it is a smart trade-off.
• All engineering economy studies of capital projects should consider the return that a given project will or should produce.
• The CW method is a convenient basis for comparing mutually exclusive alternatives when the period of needed service is indefinitely long.
• From the interest formulas, it can be seen that (P/A,i%,N) — 1/i as N becomes very large.
• The CW of a perpetual series of end-of-period uniform payments A, with interest at i% per period, is A(P/A,i%,00).
• The AW of a series of payments of amount $X at the end of each kth period with interest at /% per period is $X(4/F, i%,k).
• CW = A/i for such a series, as can also be seen from the relation CW(i%) = PWy o = A(P/A, %, 00) = A [im.
• The Capitalized Worth of such a series can thus be calculated as $X(A/F, %, k)/i.
• The Capitalized-Worth (CW) method is used if only expenses are considered, results obtained by this method are sometimes referred to as capitalized cost.
• The Capitalized Worth of a project with interest at i% per year is the annual equivalent of the project over its useful life divided by 7 (as a decimal).
• A basic question this book addresses is whether a proposed capital investment and its associated expenditures can be recovered by revenue (or savings) over time in addition to a return on the capital that is sufficiently attractive in view of the risks involved and the potential alternative uses.
• The interest and money-time relationships discussed in Chapter 4 emerge as essential ingredients in answering this question, and they are applied to many different types of problems in this chapter.
• The minimum annual electrical power savings required to make a retrofitted space-heating system economically acceptable is $28,148.40.
• If the space-heating system can save 281,480 kWh per year, it is economically justified.
• The jet will be operated for 1,200 hours per year for five years and then sold for $650,000.
• The capital recovery cost of the jet is $306,310.
• The total annual expense for the jet is the sum of the fixed costs and the variable costs.
• The MARR is 15% per year.
• Any savings greater than 281,480 kWh per year will serve to make this project even more attractive.
• The AW(20%) is equivalent to PW(20%) =$934.29 in Example 5-1 and FW(20%) = $2,324.80 in Example 5-6.
• A low-valued EUAC(i%) is preferred to a high-valued EUAC(i%).
• A corporate jet costs $1,350,000 and will incur $200,000 per year in fixed costs and $277 per hour in variable costs.
• A bond is an IOU where you agree to lend the bond issuer money for a specified length of time (say, 10 years) in return for periodic interest payments and a promise to return the face value of the bond when it matures.
• The owner of a bond is paid two types of payments by the borrower: the series of periodic interest payments he or she will receive until the bond is retired and a single payment equal in amount to the redemption or disposal price when the bond is retired or sold.
• A positive-valued PW (and FW and AW) means that accepting a project will increase the worth, or value, of the firm.
• The most common situations faced by you as a potential investor in bonds are (1) for a desired yield rate, how much should you be willing to pay for the bond and (2) for a stated purchase price, what will your yield be?