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    1) There are five methods for evaluating the economic profitability of projects: present worth, future worth, annual worth, internal rate of return, and external rate of return. These methods convert cash flows into their equivalent worth using the minimum attractive rate of return or discount rate. 2) There are two main types of projects - private projects that provide goods/services for profit and public projects that protect health/lives or provide services without profit through taxation. Private projects have a shorter life, direct benefits, and private investors/lenders while public projects have a longer life, indirect benefits, and are funded through taxation or loans. 3) The measurement of efficiency differs between private and public projects, with private using

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    1) There are five methods for evaluating the economic profitability of projects: present worth, future worth, annual worth, internal rate of return, and external rate of return. These methods convert cash flows into their equivalent worth using the minimum attractive rate of return or discount rate. 2) There are two main types of projects - private projects that provide goods/services for profit and public projects that protect health/lives or provide services without profit through taxation. Private projects have a shorter life, direct benefits, and private investors/lenders while public projects have a longer life, indirect benefits, and are funded through taxation or loans. 3) The measurement of efficiency differs between private and public projects, with private using

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    14 views5 pages

    Week 13

    Uploaded by

    Abrar Ahmad
    1) There are five methods for evaluating the economic profitability of projects: present worth, future worth, annual worth, internal rate of return, and external rate of return. These methods convert cash flows into their equivalent worth using the minimum attractive rate of return or discount rate. 2) There are two main types of projects - private projects that provide goods/services for profit and public projects that protect health/lives or provide services without profit through taxation. Private projects have a shorter life, direct benefits, and private investors/lenders while public projects have a longer life, indirect benefits, and are funded through taxation or loans. 3) The measurement of efficiency differs between private and public projects, with private using

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    ENGINEERING ECONOMICS LECTURE 13-14

    HUMA FAWAD HITEC , TAXILA SEPTEMBER 2012 JANUARY 2013


    1

    Evaluating Economic Profitablity

    Engineering Economy focuses on return that a given project or capital investment will or should produce. Five methods for evaluating the economic profitability of a single proposed problem solutions (i.e alternatives): 1. PW - Present Worth 2. FW Future Worth 3. AW Annual Worth 4. IRR Internal Rate of Return 5. ERR External Rate of Return

    1, 2, 3 Converts Cash Flows into their equivalent worth by using interest rate known as MARR 4, 5 computes annual rate of profit or return resulting from an investment and are then compared to MARR

    TYPES OF PROJECTS
    Private Purpose Provide goods or services at a profit, maximize profit or minimize costs Private Investors & Lenders Individual Ownership; partnership, corporations Public Protect health, protect lives and property. Provide services (at no profit) provide jobs Taxation; private lenders Direct Payment of Taxes, Loans without interest; loans at low interest; self liquidating bonds; indirect subsidies; guarantee of private loans Common (e.g. reservoir project for flood control, irrigation, drinking water, electrical power, recreation

    Sources of Capital Method of Financing

    Multiple Purposes

    Moderate

    Private Project Life Relationship of suppliers of capital to capital in projects Nature of Benefits Usually Short (5-10 years) Direct

    Public Usually Long (20 60 years) Indirect or None

    Monetary or relatively easy to equate to monetary terms

    Often non monetary, difficult to quantify , difficult to equate to monetary terms General Public Quite Common (dam for flood control or environment protection

    Beneficiaries of Project Conflict of Purpose

    Primarily early undertaking project Moderate

    Private Conflict of Interests Effect of Politics Moderate Little to Moderate

    Public Very common (between agencies) Frequent Factors, short term tenure for decision makers, pressure groups, financial and residential restrictions, etc Very Difficult, no direct comparison with prvate projects

    Measurement of Efficiency

    Rate of Return on Capital

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