Present value calculations are an essential part of almost every industry. I see projects every day whose economic basis depend on knowing the present value of a stream of cash flow. Unfortunately most of the time projects are justified simply on the basis of having money in the budget and choosing the next project in the priority list. A … [Read more...]
We engineers exist, by definition, on the interface between the economic and sub-economic. It is often our job to try and define the boundary, and it is often defined by technological factors that have to be developed to a new point. Most colleges and universities give engineering students a course on engineering economics, but this does not translate to widespread use … [Read more...]
The calculation of the net present value (NPV) is a budgeting technique that equates the discounted cash flows against the initial investment. The mathematical formula is: $$NPV = \sum_{t=1}^{n}\frac{FV_{t}}{(1 + k)^{t}} - I$$ Where: FV = Future cost of the cash inflows, I = Initial Investment k = Discount rate equal to the owner's cost of capital I … [Read more...]
