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COEB442 Chapter 1
COEB442 Chapter 1
Week #1 (1)
Suhaida Mohd Sood
1995
1998
2005
Types of business
1. Formation & Formalities
organisations
2. Liability
3. Taxation
4. Structure
5. Capital source and size
Types of business
organisations
Limited companies or Corporation
Types of business
Engineering Economic
Decision: Difficult?
Financial
planning
Investment
and loan
Marketing
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Analyze
Production Methods
Engineering Safety
Environmental Impacts
Market Assessment
Evaluate
Evaluate
Expected
Profitability
Timing of
Cash Flows
Degree of
Financial Risk
Impact on Financial
Statements
Firms Market Value
Stock Price
13
Accounting
Engineering Economy
Past
Future
Present
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15
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Service Improvement
Equipment and Process Selection
Equipment Replacement
New Product and Product Expansion
Example 1:
Healthcare Service Improvement
1 Traditional Plan: Patients
visit the service providers
2 New Strategy: Service
providers visit the patients
Which one of the two plans
is more economical? The
answer typically depends on
the type of patients and the
services offered. Examples?
service providers
patients
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Example 2:
Equipment Replacement Problem
Key question:
When is the right time to
replace an old machine
or equipment?
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Example 3:
New Product and Product Expansion
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Commercial Transportation
Logistics and Distribution
Healthcare Industry
Electronic Markets and Auctions
Financial Engineering and Banking
Retail
Hospitality and Entertainment
Customer Service and Maintenance
22
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Principle 1
An instant dollar is worth more than a
distant dollar
Principle 2
Only the cost (resource) difference
among alternatives counts
25
Principle 3
Marginal (unit) revenue has to
exceed marginal cost, in order to
increase production
Manufacturing cost
1 unit
Marginal
cost
Marginal
revenue
Sales revenue
1 unit
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Principle 4
Additional risk is not taken without a
suitable expected additional return
Investment Class
Potential
Risk
Expected
Return
Savings account
(cash)
Lowest
1.5%
Bond (debt)
Moderate
4.8%
Stock (equity)
Highest
11.5%
Summary
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