Time value of money, NPV and IRR compare investments.
Time value of money: F=P(1+i)ⁿ, annuities, NPV=Σ CF_t/(1+r)ᵗ, IRR, payback, benefit-cost ratio, depreciation, inflation and taxes. Compare alternatives on equivalent annual cost; consider risk with sensitivity and Monte Carlo analysis. Decisions weigh costs against benefits over life.
A $100k machine saving $30k/yr for 5 years at 8% has NPV ≈ $19.8k.
Engineering economics compares investments with different costs and returns over time, so decisions are made on value rather than first cost.
Time value of money, NPV and IRR compare investments.
Engineering economics compares investments with different costs and returns over time, so decisions are made on value rather than first cost.
Money available now is worth more than the same amount later, because it can earn interest or be invested.
The discount rate at which the net present value of an investment equals zero, which shows the return the project earns.
Typical applications include comparing two machines with different purchase prices and running costs, deciding whether an energy efficiency upgrade pays back within its life and evaluating a new production line with a discounted cash flow analysis.
Study "Sustainability and life-cycle engineering" first (topic 94 of 102 in Manufacturing, Robotics & Systems). It covers the groundwork this topic builds on.
MARR. Opportunity cost. Sunk cost fallacy.
A $100k machine saving $30k/yr for 5 years at 8% has NPV ≈ $19.8k.
The next topic is "Project management", which builds directly on this one.
It is classed as Advanced in Manufacturing, Robotics & Systems (topic 95 of 102). It is an advanced topic. It assumes you are comfortable with the intermediate topics in Manufacturing, Robotics & Systems.
Want to practise? Open the interactive course for quick checks, quizzes, simulations and progress tracking.