Engineering Economy title named TVM; Time-Value-Of-Money, It is important for any project selection

1. Project ManagementMini LectureTime Value of MoneyandPresent Worth Analysis Mahmoud S. Ahmed, B.A.Sc., E.I.T. Mahmoud.Chaaban@gmail.com www.linkedin.com/in/mahmoudchaaban

2. Introduction It is recognized that a dollar today is worth more than a dollar one or more years from now, because of the interest (profit) it can earn. Whenever capital (funds) is required in engineering and other business projects and ventures, it is essential that proper consideration be given to its cost. (i.e, time value).

3. Simple Interest Total interest is linearly proportional to the initial principal amount. It is said to be simple interest. I = (P) (N) (i) Where P = principal amount. (N) = number of interest periods. (i) = interest rate per interest period. I = $1000 x 3 x 0.10 = $300 Total amount = (P) + (I) = $1,300

4. Compound Interest The Interest charges for any interest period is based on the remaining principal amount plus any accumulated interest charges up to the beginning of that period. Is said to be compound.

6. 2- Net Present Value (NPV)

7. 3- Annual Worth

8. 4- Internal Rate of Return (IRR)

11. Economic Project Selection 2- Net Present Value NPV = PW of cash inflows – PW of cash outflows NPV = Revenue – Expenses NPV > 0 ; Project is accepted NPV < 0 ; Project is rejected NPV = 0 ; It is a risky project 3- Annual Worth AW (i%) = Revenue – Expenses – CR (i%) Where CR is capital recovery CR (i%) = I (A/P, i%, N) – S (A/F, i%, N) Where I = Initial Investment S = Salvage value at end of study period N = project study period

12. continued 4- Internal Rate of Return (IRR) By using PW formulation, we find i/% (IRR) PW = ΣR (P/F, i/ %,K) – ΣE (P/F, i/ %, K) = 0 The point of PW = 0 defines i/% if i/ % ≥ MARR, the project is acceptable, otherwise not IRR is important to the lenders. 5- The Payback (Payout) Period Σ (R – E) (P/F, i%, K) – I ≥ 0 Where i% is the MARR, I is the capital investment at k= 0

13. Before & After

14. General Project Life Cycle cost & Analysis

16. Benefit-Cost

17. Comparing Alternatives

18. Depreciation and Income Taxes

19. Cost Estimation Techniques

20. Price Change and Exchange Rates

21. Replacement Analysis

22. Dealing with Uncertainty“Our Course Project “ END======================================= Another Important Index: Earned Value Analysis in Project Management

23. Thanks QUESTIONS ? Mahmoud S. Ahmed, B.A.Sc., EIT Mahmoud.Chaban@gmail.com www.linkedin.com/in/mahmoudchaaban