Summarizing All engineering econ problems follow the same pattern

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Presentation transcript:

Summarizing All engineering econ problems follow the same pattern Using the story problem, you write down all the cash flows at the time the money moves You need to decide who’s perspective so you can keep the signs straight when money moves in and out of our pocket You multiply each cash flow term by an appropriate magic number You need to decide where you will put the pot you want to sweep the money into so you can pick the right magic number You need to look at what kind of money you have on the cash flow so you can make sure the magic number you are getting ready to use makes sense.

The Pattern You add up the terms from all the cash flow numbers that you multiplied by magic numbers You now have all the money in the pot Examine the money in the pot to decide whether there is enough there to make the deal worth while

We Have Met Three Types of Magic Numbers F/P i, n What does the F/P factor do to money? P/F i, n What does P/F do? How is that different than what F/P does? A/P i, n What does A/P do? What is an annuity?