Capitulo 5. Evaluating a Single Project

Capitulo 5. Evaluating a Single Project

1. 1. MAAR - Minimum Attractive Rate of Return

   • Hurdle rate
   • Oportunity cost view
   • Top Management
   • Debt
     • Increased borrowing
   • Equity
     • Insurance of common stock
   • Considerations
     • Money available
     • Number of good projects available
     • Risk amount
     • Type of organization

2. 2. Present Worth Method

   • Cash inflows and outflows
   • I% = effective interest rate
   • Assumptions
     • We know the future, it´s not true
   • Infinite length of time
   • CW: Capitalized-worth

3. 3. Future Worth Method

   • Worth of all cash inflows and outflows at the end one the planning period.

4. 4. The Annual Worth Method

   • Equal annual series of dollar amounts
   • Revenues and savings minus expenses
   • Usually in years
   • Greater than cero = economically attractive
   • CR= Cost
     • loss in value of asset
     • Interest from capital

5. 5. Internal Rate of Return Method

   • Most used rate
   • Investor’s method
   • Breakeven interest rate
   • Investment balance diagram
   • Installment financing
   • Analysis of two or more alternatives

6. 6. External Rate of Return Method

   • May not be valid in an engineering economy
   • Cash flow generated can be reinvested
   • Advantages
     • Solved directly
     • Nos possible multiple rates of return

7. 7. The payback Period Method

   • Profitability
   • Simple payout method
   • Proyectos liquidity
   • How fast investments can be recovered
   • Calculates the number of years
   • Simple payback period
     • ignores the time value of money
   • Breakeven life of a project
   • Secondary measurment

8. Referencia: Sullivan, W. G., Wicks, E. M., & Koelling, C. P. (2015). Engineering economy. Pearson.

9. Elsa Andrea Rodríguez, 193289

   • Declaro que realicé esta actividad con Integridad Académica

10. Sullivan, W. G., Wicks, E. M., & Koelling, C. P.