Chapter 5

DISCOUNTED PAYBACK

IE 305 – Engineering Economic Analysis

Cameron MacKenzie

IE 305 – ENGINEERING ECONOMIC ANALYSIS 1

 Example 5.3

Autonumerics Company would like to buy a new spindle at a cost of $105,000 to replace one that has a
salvage value of $20,000. The projected annual after-tax savings via improved efficiency are:
Period 1 $15,000
Period 2 $25,000
Period 3 $35,000
Period 4 $45,000
Period 5 $45,000
Period 6 $35,000

IE 305 – ENGINEERING ECONOMIC ANALYSIS 2

 Methods of analysis

1. Payback method
2. Net present value or net present worth
3. Net future worth
4. Capitalized equivalent method

5. Annual equivalent worth

IE 305 – ENGINEERING ECONOMIC ANALYSIS 3

 Payback method, Chapter 5.2

• Discounted payback method because interest rate is used

• Assume borrow at 15% interest

IE 305 – ENGINEERING ECONOMIC ANALYSIS 4

 Example 5.3

IE 305 – ENGINEERING ECONOMIC ANALYSIS 5