PASTRANO, KIRCHELL R.

BS CE 3D_B4

ASSIGNMENT NO.1

A. Definition of Concepts/Terms

1. Time Value of Money- describes the greater benefit of receiving money now rather than later.
2. Economic Equivalence-is a fundamental concept upon which engineering economy
computations are based.
3. Cash Flow-is the net amount of cash and cash-equivalents moving into and out of a business.
4. End-of-Period Convention-Accounting concept according to which all incoming and outgoing
payments (cash flows) of an investment project are considered to have occurred on the last day
of the accounting year.
5. Cost of Capital- the cost of capital is the cost of a company's funds (both debt and equity), or,
from an investor's point of view "the required rate of return on a portfolio company's existing
securities". It is used to evaluate new projects of a company. It is the minimum return that
investors expect for providing capital to the company, thus setting a benchmark that a new
project has to meet.
6. Minimum Attractive Rate of Return-For any investment to be profitable, the investor
(corporate or individual) expects to receive more money than the amount of capital invested. In
other words, a fair rate of return, or return on investment, must be realizable. The definition
of ROR in Equation is used in this discussion, that is, amount earned divided by the principal.
7. Opportunity Cost-An opportunity cost is the cost of an alternative that must be forgone in
order to pursue a certain action. Put another way, the benefits you could have received by taking
an alternative action.
8. Nominal or Effective Interest Rate (r or i)-The nominal interest rate does not take into account
the compounding period. The effective interest rate does take the compounding period into
account and thus is a more accurate measure of interest charges.
9. Placement of Present Worth (P ; PW)- is the current worth of a future sum of money or stream
of cash flows given a specified rate of return. Future cash flows are discounted at the discount
rate, and the higher the discount rate, the lower the present value of the future cash flows.
10. Placement of Future Worth (F ; FW)-is the value of an asset at a specific date. It measures the
nominal future sum of money that a given sum of money is "worth" at a specified time in the
future assuming a certain interest rate, or more generally, rate of return; it is the present value
multiplied by the accumulation function.
11. Placement of Future Worth (F ; FW)-is the value of an asset at a specific date. It measures the
nominal future sum of money that a given sum of money is "worth" at a specified time in the
future assuming a certain interest rate, or more generally, rate of return; it is the present value
multiplied by the accumulation function.
12. Placement of Gradient Present Worth (P G ; P g)-The Gradient-Present-Worth Factor (GPWF)
can be used to determine the present worth of a series of amounts which increase linearly with
time.
13. Equal-Service Requirement- Improved service quality may increase economic
competitiveness.This aim may be achieved by understanding and improving operational
processes; identifying problems quickly and systematically; establishing valid and reliable service
performance measures and measuring customer satisfaction and other performance outcomes.
14. LCM or Study Period-LCM: Compare the PW of the alternatives over a period of time equal to
the least common multiple (LCM) of their estimated lives. Study period: Compare the PW
alternatives using a specified study period of years. The study period is also called a planning
horizon .
15. Salvage/Market Value-Salvage value is the estimated value that an asset will realize upon its
sale at the end of its useful life.
16. Do Nothing-a person who is idle or lacks ambition.The opportunity cost of making one choice
over another must also be considered.
17. Revenue or Cost Alternative-Revenue is shown usually as the top item in an income (profit
and loss) statement from which all charges, costs, and expenses are subtracted to arrive at net
income. Then the alternative cost is the determination of cost and value by comparison with the
best alternative product rather than by totaling factor inputs
18. Rate of Return-Rate of return is a profit on an investment over a period of time, expressed as
a proportion of the original investment. The time period is typically a year, in which case the rate
of return is referred to as annual return.
19. Project Evaluation-Project evaluation is a systematic and objective assessment of an ongoing
or completed project.1 The aim is to determine the relevance and level of achievement of
project objectives, development effectiveness, efficiency, impact and sustainability.
20. ME Alternative Selection-a choice limited to one of two or more possibilities, as of things,
propositions, or courses of action.
21. Independent Project Selection-A project whose acceptance or rejection is independent of
the acceptance or rejection of other projects.
22. Capital Recovery-Capial recovery is the earning back of the initial funds put into an
investment. Capital recovery must occur before a company can earn a profit on its investment.
23. Economic Service Life-Economic life is the period over which an entity expects to be able to
use an asset, assuming a normal level of usage and preventive maintenance.
24. Sunk Cost-a sunk cost is a cost that has already been incurred and cannot be recovered.
25. Inflation-Inflation is the rate at which the general level of prices for goods and services is
rising and, consequently, the purchasing power of currency is falling.
26. Breakeven-To experience neither gain nor loss, neither benefit nor detriment.
27. Payback Period-The payback period is the length of time required to recover the cost of an
investment.
28. Direct / Indirect Costs-Direct costs can be defined as costs which can be accurately traced to
a cost object with little effort. Costs which cannot be accurately attributed to specific cost
objects are called indirect costs.
29. Value Added-Value-added describes the enhancement a company gives its product or service
before offering the product to customers.
30. Sensitivity Analysis-A sensitivity analysis is a technique used to determine how different
values of an independent variable will impact a particular dependent variable under a given set
of assumptions.
31. Risk-The chance that an investment's actual return will be different than expected. Risk
includes the possibility of losing some or all of the original investment.

B. What is Engineering Economy?

->Engineering economics, previously known as engineering economy, is a subset of economics
for application to engineering projects.
C. Principles of Engineering Economy
->Develop the alternatives - Identify, define, creativity, innovation.
->Focus on the differences - Differences in the future outcomes.
->Use a consistent viewpoints - The prospective outcomes of the alternatives (Stakeholders).
->Use a common unit of measure - Monetery (usually USD) presentation of the alternatives and
their outcomes.
->Consider all relevant criteria - Decision making based on several criteria.
->Make risk and uncertainly explicit - Identify, define, allocate, mitigate.
->Revisit your decisions - the initial projected outcomes of the selected alternatives should be
subsquently compared with actual results achieved.
D. Engineering economic analysis procedure
1.Problem Definition

->Mining at a new hill at Songko requires civil material resource at post mine area to construct
the mining road for next 3 years mine life time.
-> Current active civil material resources is located 5 km down to the hill.
->There is potential civil material resource at the Solia post mine area where is located 2 km of
the hill that is required for access road development.
->There is an opportunity to rehabilitate peak of Solia post mine area which has been exposed
for 7 years and unable to re-vegetate due to the slope of area is very steep with 50 meter high

2.Development of Investment Alternatives

->Option 1 : Maintain current active civil material resources with long haul distance about 7 km
->Option 2 : New investment to construct a shortcut road to have access to current mine road at
Solia.
->Option 3 : New investment to construct a new road to access the peak of Solia

3.Development of prospective Outcomes and cash flow for each alternatives

->What are the differences are the first step need to identify for each alternatives.

4.Selection of a Decision Criterion

Choose the alternative that give maximizes overall profitability.

5.Analysis and Comparison Alternatives

Considering the time value of money by using Equivalent worth method each alternatives
(Economy Engineering chapter 6) to analyze and compare the alternatives.

6.Selection of the Preferred Alternatives

Choose the alternative that give maximizes overall profitability which is presented the greatest
positive equivalent worth.

7. Performance Monitoring and post evaluation of results.

During the project implementation till finished.

E. Engineering Design Process-The engineering design process is a series of steps that engineers
follow to come up with a solution to a problem.
The steps of the engineering design process are to:
->Define the Problem ->Do Background Research ->Specify Requirement
->Brainstorm Solutions ->Choose the Best Solution ->Do Development Work
->Build a Prototype ->Test and Redesign
F. Resources allocated to efficiently satisfy human needs
->The process of distributing resources for the production of goods and services which are then
distributed for the satisfaction of wants and needs and human consumption. This is also
commonly referred to by the single word "allocation." The resource allocation process is an
essential part of an economy's effort to address the problem of scarcity.