Lecture 1j PDF

Engineering Economics
EBGN321C
The course documents may be accessed at
http://blackboard.mines.edu
Engineering Economics, Spring 2017 (EBGN321C)
Economic Evaluation and

Investment Decision Methods
EBGN504A or CBEN504A
The course documents may be accessed at
http://blackboard.mines.edu
All students are registered for one of two (2) Sections
Economic Evaluation, Spring 2017 (EBGN504A)
Advanced Process Economics, Spring 2017 (CBEN504A)
Announcement on BB;
Please be aware that Engineering Economics (EBGN321) cannot be used for the CSM
HumaniDes and Social Science (H&SS) requirement. This is oIen a source of
confusion and frustraDon. Some departments refer to the H&SS requirement as
LAIS/EBGN ElecDves, and many students have been led to believe that any EBGN
course will count. Although many EBGN courses do saDsfy this requirement,
EBGN321 is not one of them. No excepDons will be granted. If you have quesDons,
please contact the EB Undergraduate Coordinator, ScoU Houser,
at shouser@mines.edu.
Further, in a related by slightly dierent subject, if you have already taken

EBGN321 or CBEN421, you cannot take 504 and obtain graduate credit since it
is virtually the same course.
Prerequisite: None
Course locations and times are as follows:
Sec A; n/a this semester
Sec B; Mon/Wed, 3:00pm 4:15pm, BH241
Sec C; Tue/Thur, 2:00pm 3:15pm, BH241
Engineering Economics /
Economic Evaluation
Prerequisite: None
Course locations and times are as follows:
Sec A; n/a this semester
Sec B; Mon/Wed, 3:00pm 4:15pm, BH241
Sec C; Tue/Thur, 2:00pm 3:15pm, BH241
504A: Tue/Thur, 12:30pm 1:45pm, BH108
Economic Evaluation
Instructor: Mr. John Stermole, jstermol@mines.edu
Office Information:
Old Engineering Hall, 303-384-2209
Division of Economics and Business
Room # 125/126 Engineering Hall
Office Hours:
Monday 1:00 2:30
Tuesday 10:00 12:00
Wednesday 10:00 12:00 and 1:00 2:30
Thursday 10:00 12:00
Call or e-mail to schedule an appointment. Usually in around
8:30 till 4:00, if door is open, feel free to come in.
Economic Evaluation
Instructor: Mr. Andrew Pederson apederso@mines.edu
Office Information:
Engineering Hall, 303-273-3426
Division of Economics and Business,
Room # 125
Office Hours:
Monday 9:00-12:00 and 1:00-2:30
Tuesday 9:00-12:00
Wednesday 9:00-12:00 and 1:00-2:30
Thursday 10:00-12:00
Open Door Policy, Just stop by!
Required Textbook: (3 Copies on Reserve in Library)
Economic Evaluation and Investment Decision Methods,
14th Ed., 2014 by Stermole and Stermole.
Recommended Textbook:
Self Teaching Manual for Economic Evaluation and
Investment Decision Methods, 14th Ed, 2014.

STM is also available in Spanish, see J. Stermole
Grading:
Exam #1, Chapters 1-3
100 Pts
125 Pts
150 Pts
02/09/17
03/09/17
04/27/17
All exams will be open textbook only, no self-teaching manuals
allowed.
Your exam must be stapled to your work for any possibility of
credit.
No cellular phones, etc. allowed at your desk during exam
sessions.
IDs required, leave all other material in front of classroom.
Exams
Initial Investment Game Report
Intermediate Investment Report
Final Investment Game Report
Homework and Quizzes*
Total (*Approximate)
375 Pts
20 Pts
30 Pts
100 Pts
210 Pts*
735 Pts
*Grades will be determined on total points, not letter scores.
735 is an approximate total that may vary with actual

homework and quizzes and awarded points this semester.
Economic Evaluation (504A)
Exams
Initial Investment Game Report,
Intermediate Invest. Game Report,
Final Investment Game Report,
Homework and Quizzes*
Project (504 Students Only)
375 Pts
20 Pts
30 Pts
100 Pts
210 Pts*
100 Pts
Total*
835 Pts
*Grades will be determined on total points, not letter scores.
835 is an approximate total that may vary with actual

homework and quizzes this semester.
All homework, tests, and quizs must have
Name (John Smith)
Full Section (EBGN321C or EBGN504 or CBEN504)
Homework must be turned in the day its due.

No make up homework will be assigned
Approximate Course Schedule:
January - Text chapters 1, 2 & 3; time value of money &
decision criteria
February - Text chapters 4, 5 & 6; application of criteria,
inflation, sensitivity & risk
March - Text chapters 7 & 8; after-tax cash flow and
analysis of projects
April - Text chapters 9, 10 & 11; after-tax applications,
replacement, borrowed money
A more detailed schedule outlining all reading assignments
and homework will be posted separately for each exam at

Eng. Econ. Lectures
Sample - Assignments to Exam #1
https://wsj.com/spring2017
Economic Evaluation
Financial Calculators
HP10BII (Algebraic, recommended, cheapest & easiest)
HP17BII (Algebraic or RPN)
HP12C (RPN or Algebraic in Platinum Ed.)
TI BAII (Inexpensive but much more labor intensive)
Others are available, look for IRR Function
Apps available on cell phones wont work on exams, sorry!
Ibbotson SBBI
Stocks, Bonds, Bills, and Inflation 19262015
Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926. Assumes reinvestment of income
and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an
index. Morningstar. All Rights Reserved.
(Chapter 2)
Future Value F is obtained by compounding a Present
Value P at a specified interest rate, i for a specified
period of time, n. This is achieved as follows:
F = P(1+i)n
The expression (1+i)n is defined as a Single Payment

Compound Amount Factor. (1+i)n is also represented in a
format (F/Pi,n) and pronounced in this class as an; F P
Factor.
Ibbotson SBBI
10
Economic Evaluation
Looking at the Large Company Stocks (S&P 500)
ETF = SPDR
To calculate the future value, F = P (1+i)n

Assume Present Value, P = $1
Number of compounding periods n = 90yrs (1926-2015)
Compound interest rate, i = 0.100176 or, 10.0176%
using the decimal equivalent form of i
Future Value, F = $1(1.100176)90 = $5,390
Ibbotson SBBI
11
Economic Evaluation
Present Value P is obtained by discounting a known
Future Value F at a specified interest rate i over a
specified number of compounding periods, n. This is
achieved by re-arranging the previous expression to solve
for P as follows;
P = F(1/1+i)n
The expression (1/1+i)n is defined as a

Single Payment Present Worth Factor and often
represented as (P/F i, n).
Economic Evaluation
Suppose you wanted to retire in 30 years with
$5,000,000 in savings and you thought you could earn

10% per year on your money, what sum would you
have to invest today?
What do we know?
F = $5,000,000
n = 30 years
i = 10% per year, compounded annually
Calculate P given F, using a P/F factor
12
Economic Evaluation
Suppose you wanted to retire in 30 years with a future sum,
F of $5,000,000 in savings and you thought you could earn

10% per year on your money, what present sum P would
you have to invest today?
P=?
- ...
3 ...
30
F=$5,000,000
Economic Evaluation
This involves calculating the present value P of a known
future quantity F and the use of a single payment present

worth factor, or P/F i, n = 1/(1+i)n
Calculating P from F gives: P = F(1/(1+i)n
P = $5,000,000(1/1.1)30 = $286,543
13
Economic Evaluation
This involves calculating the present value P of a known
future quantity F and the use of a single payment present

worth factor, or P/Fi,n = 1/(1+i)n
Calculating P from F gives:
P = $5,000,000(1/1.1)30 = $286,543
or,
0.0573
P = $5,000,000(P/F10%,30) = $286,500
Round-off error due to factor value (0.0573) presented in
Appendix A, page 741
Economic Evaluation
What if you wanted to know how much you would
need to contribute each year, starting one year from

today, to end up with $5,000,000 some 30 years from
now? Assume your money is still earning 10% per year
compounded annually. The answer we are seeking is
an annual amount that might be described as an
Annuity, which in the textbook is represented by the
letter A.
14
Economic Evaluation
To solve, build a diagram describing the problem in terms of
factor variables P, F or A and n and i. As with the past
examples, this helps us identify what is known and what is
being solved. This solution involves another factor known as
the Sinking Fund Deposit Factor, or A/F factor as shown;
Economic Evaluation
-
A=?
A=? . . .
A=?
29
A=?
F=$5,000,000
30 yrs
15
Economic Evaluation
0
A=? A=? A=? . . .

1
2
3 ...
A=? A=?
F=5,000,000
29 30 yrs
Calculating A from F using an A/F factor, i = 10%, n = 30

A/F factor mathematically is; i / [(1+i)n 1]
A = F(i / [(1+i)n 1]) or, A = F(A/Fi%,n)
A = 5,000,000 {0.1/[(1.10)30 1]} = 30,396
Alternative Approach Using Tables in Textbook (page 741);
0.00608
A = 5,000,000(A/F10%,30) = 30,400 (round-off error due to table)
Economic Evaluation
Chapter 2 Next Week
Check the outline and assignment for next week:
Blackboard Engineering Economics Sec C - 2017
Or, Economic Evaluation and Investment Decision Methods, EBGN504
Or, Advanced Processing Economic Evaluation CBEN504
You Should be Automatically Enrolled For This Class!
Assignment #1 is due Tuesday at the beginning of class (10 Points).
16

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Engineering Economics

Economic Evaluation and

Further, in a related by slightly dierent subject, if you have already taken

8:30 till 4:00, if door is open, feel free to come in.

Open Door Policy, Just stop by!

14th Ed., 2014 by Stermole and Stermole.

Investment Decision Methods, 14th Ed, 2014.

All exams will be open textbook only, no self-teaching manuals

*Grades will be determined on total points, not letter scores.

735 is an approximate total that may vary with actual

Economic Evaluation (504A)

*Grades will be determined on total points, not letter scores.

835 is an approximate total that may vary with actual

Homework must be turned in the day its due.

inflation, sensitivity & risk

March - Text chapters 7 & 8; after-tax cash flow and

replacement, borrowed money

A more detailed schedule outlining all reading assignments

and homework will be posted separately for each exam at

Sample - Assignments to Exam #1

The expression (1+i)n is defined as a Single Payment

To calculate the future value, F = P (1+i)n

Future Value, F = $1(1.100176)90 = $5,390

The expression (1/1+i)n is defined as a

$5,000,000 in savings and you thought you could earn

F of $5,000,000 in savings and you thought you could earn

future quantity F and the use of a single payment present

future quantity F and the use of a single payment present

need to contribute each year, starting one year from

A=? A=? A=? . . .

Calculating A from F using an A/F factor, i = 10%, n = 30

Assignment #1 is due Tuesday at the beginning of class (10 Points).

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