ECONOMICS AND MANAGEMENT FOR THE ENGINEERS CHAPTER 2

Tools for Making Effective Engineering and Technology Management Decisions

Today’s engineering and technology managers make use of various types of

methods, including the ones developed for use in general management decision
making.

Discounted Cash Flow Analysis

In many engineering and technology management decisions, the time value of

money plays an important role. This section presents some fundamental aspects of
engineering economics useful to perform discounted cash flow analysis.

Compound Interest and Present Value

In the case of compound interest, at the end of each specified period, the
earned interest (‫بة‬--‫دة مكتس‬--‫ )فائ‬is added to the original amount principal. This new
principal or amount acts as a principal for the next specified period and the process
continues. Consequently, the interest is compounded into principal. Mathematically,
at the end of the first period the amount is expressed by

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ECONOMICS AND MANAGEMENT FOR THE ENGINEERS CHAPTER 2

Example

Assume that a company has procured a robotic system and after 15 years of usage its
value is estimated to be $80,000. The annual compound interest rate is estimated to
be 5%. Calculate the present worth of the robotic system’s estimated value of
$80,000.

Solution:

Thus, the present worth of the robotic system’s $80,000 value is $38,481.37.