1 quiz preparation l have quiz sheet ready. title = quiz 12 »name (l, f, mi), »today’s date...
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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
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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.
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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
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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: [email protected] Phone: 803.123.4567
Insert date
Substitute a simple Gantt chart showing timelines, milestones, and costs by work task.
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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.
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Announcements
For lecture meetings 13 and 14, prepare ahead by (a) reading Chapter 19 and (b) thinking about ethical issues you have dealt with.
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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
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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.
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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
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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
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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?
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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
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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%.
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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
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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
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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
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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