1

Quiz Preparation

Have Quiz sheet ready. Title = QUIZ 12»Name (L, F, MI), »Today’s date 11/6/12, »Lab day , time» section number

2

Announcements

Competition is this Thursday (11/8). Meet in Broun 125. Runs start at 7:00 p.m. Come early if possible.

There is no lab activity this week except for the competition.

3

Major Changes

No oral presentations. These will be replaced by Quad Charts.

All sections have the following three items due by noon on 11/27:» Quad Charts» PDM 2» Final design report

4

Quad Charts

Discussed in more detail next week Each team will prepare a Quad Chart

according to the format that will be provided. Look for a forthcoming email & posting on the public class website.

Quad Chart score will substitute for the oral presentation.

OBJECTIVES - METHODS

• Describe the new and unproven technology to be exploited.

• From a technical perspective, why is this important to do now?• Describe how the research will be conducted and how the

technology will be tested (add scenarios, if applicable).• Project team, if appropriate.• Describe performance metrics to be met.• Describe project deliverables.

APPLICATIONS - TRANSITION

• Describe the maritime military value and operational improvement.• To whom is it important (e.g., potential military sponsor /user of the

capability)?• What is the intended application for the result (e.g.,

commercialization)?• Why is the effort important?• Anticipated or actual results.• Estimated Technology Readiness Level (TRL).

(Initial or Final) Quad Chart

Project Title(Initial or Final) Quad Chart

Project Title

SCHEDULE & BUDGET

Insert Graphic Here

Photograph, artist’s rendering, flow chart,

or other graphic to convey the main

concept of the project; add minimal

explanatory text if required.

TASK Jan Feb Mar Apr Cost

Task 1 (Describe)Task 2Task 3SubcontractsFinal ReportAdmin

Etc.

Total

Company: Acme Widgets Inc. Contact: John Q. Public Email: jqp@acme.com Phone: 803.123.4567

Insert date

Substitute a simple Gantt chart showing timelines, milestones, and costs by work task.

7

Announcements

There is no final exam for this course.

Tuesday 11/27 will be our last meeting for the course. There is no lab that week after the lecture.

Course evaluations are performed online.

8

Announcements

For lecture meetings 13 and 14, prepare ahead by (a) reading Chapter 19 and (b) thinking about ethical issues you have dealt with.

9

Final Design Report

Similar to Preliminary Design Report» Based on FINAL design» Follow the format on the class website, and incorporate

the feedback I provided on your preliminary report.

Describe alternatives considered

Justify your design decisions» Use quantitative data if possible

10

Rubrics

A rubric is an explicit set of criteria used for assessing a particular type of work or performance.

Oral and Written Report Rubrics are on class website.

11

Financial Engineering

Recent feedback from E&CE Industrial Advisory Board:

“Every E&CE graduate needs to understand engineering economics.”

Important part of professional engineer license -- Fundamentals of Engineering exam

INSY 3600 – Engineering Economy

12

Financial Engineering

Accounting» Recording and summarizing financial

transactions» Cost accounting

Engineering economy» Economic analysis used to make decisions that

have effects on current and future financial transactions

13

Economic Decision-Making

If and when should a piece of equipment, facility, or process be replaced?

Is one machine or process more economical than another?

Is a specific product profitable in the long-run?

Which products should be stored in inventory and where?

14

Accounting

Asset = anything of monetary value Liability = debt that the company owes Net worth = ownership interest in the

company = capital stock + retained earnings Revenue = income due to the sale of a

product or service Expense = expenditure for operations

15

Accounting

Balance sheet– Assets, liabilities, net worth

Income statement– Revenues, expenses, net profit

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Cost Accounting

Variable costs» Direct material» Direct labor

Fixed costs (overhead)» Equipment, facility, tooling» Cost allocation

– Based on variable cost– Based on activity

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Cost Accounting Example Part A (a PC motherboard) requires:

» one hour of labor @ $40/hr.» $50 in parts.

Part B (a smartphone board) requires:» 0.2 hours of labor @ $40/hr.» $35 in parts.

Both parts use the production machinery costing $80,000,000 50% of the time.

100,000 of Part A and 500,000 of Part B are made.

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Variable Costs

Part A:» $50+$40=$90 per part» 90*100,000 = $9M total variable cost

Part B:» 0.2*($40)+$35=$43 per part» 43*500,000 = $21.5M total variable cost

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Fixed Costs

Usual approach is % allocation of variable costs:» Part A % = (Part A variable)/(Total variable) =9/30.5= 29.5%» Part B % = (Part B variable)/(Total variable) = 21.5/30.5=70.5%

Fixed costs on this basis:» Part A = 0.295*$80M = $23.6M» Part B = 0.705*$80M = $56.4M

This is not a very good estimate of actual cost, since both parts use the machine 50%.

20

Activity-Based Costing

Allocate costs based on actual use:

In the previous example, split the fixed cost of the machine 50/50, since both parts use the machine equally:

Total costs:» Part A = $9M + $40M = $49M» Part B = $21.5M + $40M = $61.5M

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Unit Costs

Unit cost = Total cost/ # of units» Activity-based costing

– Part A unit cost = $49M/100,000 = $490– Part B unit cost = $61.5M/500,000 = $123

» Percent of variable costs– Part A unit cost = $32.6M/100,000 = $326– Part B unit cost = $77.9M/500,000 = $156

There are some tricky aspects of this -- what if machine had to be purchased for one part regardless?

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Time Value of Money

Would you rather have $100,000 now or $104,000 a year from now?

Is it cheaper to replace a labor-intensive process with an automated one?

Is it cheaper to buy or lease a piece of equipment?

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Time Value of Money

P = present value F = future value A = total payment spread evenly over n years i = annual interest rate (rate of return) n = number of years

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Cash Flow Diagram

40,0001,000 1,000

8,000

0

1 2

1,000

3

4 5

i = 6%

Income

Expenditures

4,000

25

Time Value

Single-payment compound amount

Present value of a future cash flow

Example: F=$1,000 i=6% n=1» P=1000*(1+0.06)-1=$943

(1 )nF P i

(1 ) nP F i

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Cash Flow Diagrami = 6% 40,0001,000 1,000

8,000

0

1 2

1,000

3

4 5

4,000

$934$890

-$3359$792

$29890

$37147

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Example

Rate of return is 12%; time horizon is 5 years:

1. Current manual process costs $10,000 per year.

2. Machine A costs $30,000 to purchase with $2,000 per year operating cost. Salvage value at the end of five years is zero.

3. Machine B costs $40,000 now and $1,000 per year to operate. At the end of 5 years it will be worth $9,000.

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Example

Simply adding up the cash flow values for each alternative is not a valid comparison.

Need to convert all dollars to same time for valid comparison.

Usually convert to present value (PV).

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Example

Alternative 1: Net Present Value (NPV)+0+10,000*(1.12)-1

+10,000*(1.12)-2

+10,000*(1.12)-3

+10,000*(1.12)-4

+10,000*(1.12)-5

36,048

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Example

Alternative 2: Net Present Value (NPV)+30,000

+2,000*(1.12)-1

+2,000*(1.12)-2

+2,000*(1.12)-3

+2,000*(1.12)-4

+2,000*(1.12)-5

37,210

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Example Alternative 3: Net Present Value (NPV)

+40,000+1,000*(1.12)-1

+1,000*(1.12)-2

+1,000*(1.12)-3

+1,000*(1.12)-4

+1,000*(1.12)-5

-9,000*(1.12)-5

38,498

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Example Comparison

Alternative Cash Flow NPV

1 50,000 36,048

2 40,000 37,210

3 36,000 38,498

Conclusion: Alternative 1 has the best cash flow but the worst NPV. Choose #3.

Excel File

33

Excel’s Financial Functions

FV( ) NPV( ) PV( ) PMT( )

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Quiz Preparation

Have Quiz sheet ready. Title = QUIZ 12»Name (L, F, MI), »Today’s date 11/6/12, »Lab day , time» section number

35

Quiz 12 (answers)

1. The usual method of converting all dollars to the same time for valid comparison is called net __present_ value

2. Anything of monetary value is called a(n) ___asset___

3. Anything debt the company owes is called a(n) ___liability_____

Quiz scoring: 3 points each answer, 25 points total