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Engineering Economic Analysis Methods

The document outlines methodologies for engineering economic analysis, focusing on investment project evaluations. It includes calculations for payback periods, benefit-cost ratios, internal rate of return (IRR), and external rate of return (ERR) for various investment scenarios. Key financial metrics such as cash flows, initial costs, and required rates of return are provided for analysis.

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5 views1 page

Engineering Economic Analysis Methods

The document outlines methodologies for engineering economic analysis, focusing on investment project evaluations. It includes calculations for payback periods, benefit-cost ratios, internal rate of return (IRR), and external rate of return (ERR) for various investment scenarios. Key financial metrics such as cash flows, initial costs, and required rates of return are provided for analysis.

Uploaded by

078bce004.aakriti
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 3

Basic Methodologies of Engineering Economic Analysis


Tutorial

1. You are considering an investment project that requires an initial outlay of Rs. 10,000.
The project is expected to generate the following annual cash flows:

 Year 1: Rs. 3,000


 Year 2: Rs. 3,500
 Year 3: Rs. 2,500
 Year 4: Rs. 4,000
 Year 5: Rs. 3,700

The required rate of return for the project is 8%.

a) Calculate the simple payback period for this investment.


b) Calculate the discounted payback period for this investment.

2. Determine both types of B/C ratio using FW,PW & AW formulation.


Initial cost = 2,50,000
Annual Revenue = 75,000 at the end of first year and increasing by Rs. 5,000 each year
Annual O&M = 15,000
Salvage value = 25,000
MARR= 10%

3. Find IRR of the following project with the initial investment of 5,00,000 & the salvage
value Rs. 1,00,000 at the end of 5 years. The annual cash flow are as follows. Also draw
the investment balance diagram.
END OF YEAR BENEFIT CASH IN FLOW
1 105000 5000
2 115000 10000
3 125000 15000
4 135000 20000
5 145000 25000

4. Find ERR of the following project. Determine the project is acceptable or not when
MARR=15%
Initial investment (Rs.30000)
Salvage value (Rs.2000)
Useful life (5 Yrs.)
Annual revenue (Rs.12000)

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