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Engineering Economics Notes

Engineering Economics Notes

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Published by Ram Krishna Singh

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Published by: Ram Krishna Singh on Jul 19, 2010
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07/02/2014

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Page
 
1
 
of 
 
55
 
By
 
Prof.
 
Amrit
 
Nakarmi
 
I/II
 
MSREE
 
09
 
July
 
2008
 
Introduction
 
to
 
Economics
 
of 
 
Energy
 
Projects
 
(EG854ES)
 
What
 
Is
 
Economics?
 
Scarcity
 
All
 
economic
 
questions
 
arise
 
from
 
a
 
single
 
and
 
inescapable
 
fact:
 
you
 
can't
 
always
 
get
 
what
 
you
 
want.
 
We
 
live
 
in
 
a
 
world
 
of 
 
scarcity.
 
Scarcity
 
means
 
that
 
wants
 
always
 
exceed
 
resources
 
available
 
to
 
satisfy
 
them.
 
People
 
get
 
involved
 
in
 
Economic
 
Activity
 
to
 
cope
 
with
 
Scarcity.
 
Economics
 
is
 
the
 
study
 
of 
 
how
 
people
 
use
 
their
 
limited
 
resources
 
to
 
try
 
to
 
satisfy
 
unlimited
 
wants.
 
Faced
 
with
 
scarcity,
 
we
 
have
 
to
 
make
 
choices
 
because
 
we
 
can't
 
have
 
all
 
what
 
we
 
want.
 
Balancing
 
the
 
wants
 
and
 
the
 
resources
 
available
 
is
 
called
 
economizing
 
or
 
optimizing.
 
What
 
Is
 
Energy
 
Economics?
 
What
 
is
 
competition?
 
Competition
 
is
 
the
 
contest
 
for
 
command
 
over
 
scarce
 
resources.
 
For
 
human
 
life
 
and
 
the
 
production
 
processes,
 
a
 
sufficiently
 
available
 
of 
 
energy
 
is
 
the
 
highest
 
priority.
 
Human
 
beings
 
can
 
live
 
without
 
other
 
things,
 
but
 
not
 
without
 
energy
 
resources.
 
Energy
 
resources
 
are
 
also
 
scarce
 
and
 
hence,
 
needs
 
its
 
optimization
 
and
 
it
 
is
 
dealt
 
by
 
energy 
 
economics
.
 
What
 
Is
 
Economics
 
of 
 
Energy
 
Projects?
 
Economics
 
of 
 
Energy 
 
Projects
 
deals
 
with
 
how
 
economically
 
an
 
energy
 
project
 
can
 
be
 
established
 
and
 
operated.
 
Cost
 
structure,
 
financing,
 
capital
 
budgeting
 
(project
 
evaluation),
 
and
 
financial
 
performance
 
analysis
 
of 
 
the
 
energy
 
projects
 
or
 
firms
 
are
 
looked
 
into.
 
Types
 
of 
 
Firms
 
Three
 
basic
 
types
 
of 
 
firm
 
 
Sole
 
proprietorship
 
 
Partnership
 
 
Corporation
 
or
 
limited
 
company
 
Sole
 
proprietorship
 
It
 
is
 
the
 
oldest
 
form
 
of 
 
business
 
organization.
 
A
 
single
 
person
 
owns
 
the
 
business,
 
holds
 
title
 
to
 
all
 
its
 
assets,
 
and
 
is
 
responsible
 
for
 
all
 
of 
 
its
 
liabilities.
 
Advantages
 
 
Simplicity
 
 
Quicker
 
decision
making
 
 
Easy
 
to
 
establish
 
 
Page
 
2
 
of 
 
55
 
Disadvantages
 
 
Good
 
for
 
small
 
firms
 
and
 
not
 
good
 
for
 
big
 
firms
 
such
 
as
 
energy
 
Cos.
 
 
Responsible
 
for
 
all
 
liabilities
 
 
Difficult
 
to
 
raise
 
capital
 
 
Cost
 
of 
 
capital
 
is
 
high
 
Partnership
 
A
 
partnership
 
is
 
similar
 
to
 
a
 
proprietorship
 
in
 
all
 
aspects
 
except
 
that
 
there
 
is
 
more
 
than
 
one
 
owner.
 
Advantages
 
 
Decision
 
made
 
through
 
consensus/agreement
 
,
 
hence
 
low
 
risk
 
 
Can
 
raise
 
higher
 
capital
 
 
Easy
 
to
 
establish
 
but
 
more
 
complex
 
than
 
single
 
proprietorship
 
Disadvantages
 
 
Responsible
 
for
 
all
 
liabilities
 
 
Slower
 
decision
making
 
process
 
than
 
single
 
proprietorship
 
 
Difficult
 
to
 
raise
 
capital
 
Corporation
 
or
 
Limited
 
Company
 
A
 
company
 
is
 
an
 
impersonal
 
entity
 
created
 
by
 
law,
 
which
 
can
 
own
 
assets
 
and
 
liabilities.
 
The
 
main
 
feature
 
of 
 
this
 
form
 
is
 
that
 
the
 
Co.
 
is
 
separate
 
from
 
its
 
owners.
 
A
 
owner’s
 
liability
 
is
 
limited
 
to
 
his/her
 
shareholding
 
only.
 
Advantages
 
 
Limited
 
liability
 
 
Can
 
raise
 
higher
 
capital
 
(a
 
kind
 
for
 
energy
 
Cos.)
 
 
Lower
 
cost
 
of 
 
capital
 
 
Decision
making
 
through
 
consensus
 
Disadvantages
 
 
Slow
 
decision
making
 
 
Difficult
 
to
 
set
 
up
 
 
 
RAISIN
 
Equity
 
Equity
 
ca
 
 
 
 
 
 
 
 
 
Rights
 
o
 
R
tr
 
R
e
 
FINANCE
apital
 
pital
 
represe
Authorize
memoran
Issued
 
caSubscribePaid
up
 
cPar
 
value
 
Book
 
valu
outstandi
Market
 
V
market.
 
Initial
 
Pu
Subseque
Rights
 
Iss
existing
 
sh
 
equity
 
sha
ight
 
to
 
inco
e
 
debt
 
obligtained
 
earni
ight
 
to
 
contr
ery
 
resoluti
 
nts
 
ownershi
d
 
capital
 
 –
 
um
 
of 
 
assoc
ital
 
 –
 
the
 
am
 
capital
 
 –
 
Th
pital
 
 –
 
The
 
a
 
It
 
is
 
the
 
val
e
 
 –
 
It
 
is
 
the
 
sg
 
shares.
 
lue
 
 –
 
It
 
is
 
t
lic
 
Offering
 
(
t
 
offering
 
is
 
ue
 
 –It
 
is
 
theareholders.
 
eholders
 
e
 
 –
 
The
 
equiation
 
and
 
prngs
 
or
 
paid
 
o
ol
 
 –
 
Equity
 
sn
 
placed
 
bef p
 
capital
 
as
 
eThe
 
amouniation.
 
ount
 
offerede
 
part
 
of 
 
thectual
 
amoune
 
stated
 
in
 
tum
 
of 
 
the
 
pae
 
value
 
of 
 
IPO)
 
 –
 
The
 
icalled
 
Secon
 
selling
 
of 
 
tty
 
shareholdferred
 
shareut
 
as
 
dividenareholders
 
ore
 
the
 
Co.
 
quity
 
(commt
 
of 
 
capital
 
by
 
the
 
Co.
 
t
 
issued
 
capit
 
paid
 
up
 
by
 
the
 
memoranid
up
 
capital
 
he
 
share
 
at
 
itial
 
public
 
iary
 
public
 
oe
 
security
 
iers
 
have
 
resi
 
dividends.
 
Td.
 
re
 
the
 
actuaon)
 
shareholthat
 
a
 
Co.
 
the
 
sharehl
 
which
 
has
 
he
 
investors.dum
 
and
 
theand
 
retainewhich
 
it
 
is
 
tsue
 
of 
 
the
 
sfering
 
(SPO).n
 
the
 
primadual
 
claim
 
to
 
he
 
residual
 
il
 
owners
 
of 
 
t
 
ers
 
collectivcan
 
potentlders.
 
een
 
subscri
 
share
 
certifi
 
earnings
 
diaded
 
in
 
the
 
ares
 
to
 
the
 
y
 
market
 
b
 
the
 
income
 
come
 
can
 
bee
 
Co.
 
and
 
hPely
 
own
 
the
 
ially
 
issue,
 
ed
 
to
 
the
 
inate.
 
ided
 
by
 
the
 
stock
 
exchaembers
 
of 
 
issuing
 
shaof 
 
the
 
firm
 
a
 
withheld
 
byve
 
the
 
right
 
ge
 
3
 
of 
 
55
 
ompany.
 
s
 
per
 
its
 
estors.
 
number
 
of 
 
ge
 
or
 
the
 
the
 
public.
 
res
 
to
 
the
 
ter
 
paying
 
the
 
Co.
 
as
 
to
 
vote
 
on
 

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