Process economics II Process economics II Process economics II Process economics II

H82PLD - Plant Design Econ II - 2

Lecture outline Lecture outline Lecture outline Lecture outline
Time value of money
Project cash flow
Comparing alternatives
Project cash flow
Profitability analysis
H82PLD - Plant Design Econ II - 3
Time value of money Time value of money Time value of money Time value of money
Interest is the manifestation of the time value of money.
From the perspective of a saver, a lender, or an investor,
interest earned is over a specific period of time is know as
rate of return (ROR).
Interest period is the time unit for rate of return.
( ) % 100
amount original
unit per time accrued interest
% rate Interest =
( ) % 100
amount original
unit per time accrued interest
% return of Rate =
H82PLD - Plant Design Econ II - 4
Simple interest Simple interest Simple interest Simple interest
Simple interest is calculating using principle only,
ignorin any interest accrued in preceding interest
period.
Simple interest = (Principle)(Number of periods)(interest
rate)
Example:
A load of $1000 for 3 years at 5% per year simple interest.
How much is the value after 3 years.
Total Due = $1000 + $1000(3 yr)(0.05/yr) = $1150