Name: Tosif ur Rehman

Reg.No: FA19-CVE-072
Subject: Engineering Economics
Titile: Assignment
Submitted To: Dr.Hassan Ashraf
Date: 05-10-2021

Department Of

CIVIL ENGINEERING
MARR
A minimum acceptable rate of return (MARR) is the minimum profit an
investor expects to make from an investment, taking into account the risks of
the investment and the opportunity cost of undertaking it instead of other
investments. Minimum acceptable rates of return are also known as hurdle
rates, cut-off rates or benchmarks.

An investment has been a successful one if the actual rate of return is above
the minimum acceptable rate of return. If it is below, it's seen as an
unsuccessful investment and you might, as an investor, pull out of the
investment.

Interest Rate
Interest is the price a borrower pays to use someone else's money.
Buy a bond or put money in a savings account, and you'll be the one earning
interest: Someone will pay you for the privilege of using your money.

For Example, Hassan has taken a Loan amounting to Rs. 20, 00,000 at a 6%
annual rate of interest from a Bank. You have to pay the money back to the
Bank, but not the whole amount at a time, you have to pay it year on year and
also the 6 percent interest on the outstanding Loan balance for the privilege of
using their money. Home loans, Car Loans follow the same principle.

Discount Rate
In banking term:

Discount Rate is the interest rate that the Federal Reserve Bank charges to the
depository institutions and to commercial banks on its overnight loans. It is set
by the Federal Reserve Bank, not determined by the market rate of interest.
While, an interest rate is an amount charged by a lender to a borrower for the
use of assets.
In Financial Management:

The discount rate is used in the concept of the Time value of money-

determining the present value of the future cash flows in the discounted cash
flow analysis

Let’s take an example, Suppose an investor invest 10 lace rupees in a business

and he gets 7% returns in next 5 years to achieve his goal. This 7% return is his
discount rate. So this discount rate helps the investor to calculate the
investment amount to achieve his goal

So the discount rate helps us in;

1. Account for the time value of money.

2. Account for the riskiness of an investment.
3. Make different investment more comparable.
4. To calculate net profit of business.

THANK YOU