Analisis Ekonomis - Minggu 9

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Analisis Ekonomis



Planning

Product Development Process

Concept

Development

System-Level

Design

Detail

Design

Testing and

Refinement

Production

Ramp-Up

Concept Development Process

Perform Economic Analysis

Benchmark Competitive Products

Build and Test Models and Prototypes

Identify

Customer

Needs

Establish

Target

Specifications

Generate

Product

Concepts

Select

Product

Concept(s)

Set

Final

Specifications

Plan

Downstream

Development

Mission

Statement Test

Product

Concept(s)

Development

Plan



Time Value of Money

Proposition:

The value of money changes over time: generally$1 in the future is worth less than $1 now

Evidence:

Organizations are willing to borrow money in the

present and then return more than what theyborrowed at some point in the future (rentingmoney).



Example 1: Simple Interest Future Value

Assume:

± Invest $100 now (P=$100)

±

At 8% annual interest rate (i =8%=0.08)

± A single 1 year period (n=1)

Find: Future Value (F)

± F = (1+i)P = (1+0.08)100= $108



Example 2: Simple Interest Present Value

Assume:

± Desire a future payout of $100 (F=$100)

±

At 8% annual interest/discount rate (i =8%=0.08)

± After a single 1 year period (n=1)

Find: Present value to give F=$100

± Same equation: F = (1+i)P, but solve for P

± P=F/(1+i) = $100/(1+0.08)= $92.59



Example 3: Compound Interest Future Value

Assume: ± Invest $100 now (P=$100)

± At 8% annual interest rate (i =8%=0.08)

±

For a 3 year period (n=3) Find: Future Value (F)

± Fafter 1 year = (1+i)P = (1+0.08)100= $108

± Fafter 2 years = (1+i)(1+i)P = (1+0.08)(1+0.08)100= $116.64

±Fafter 3 years = (1+i)(1+i)(1+i)P = $125.97



Example 4: Compound Interest Present Value

Assume:

± Desire a future payout of $100 (F=$100)

±

At 8% annual interest rate (i =8%=0.08)

± After a 3 year period (n=3)

Find: Present value to give F=$100

± Same equation: F = (1+i)(1+i)(1+i)P, but solve for P

± P=$100/[(1+0.08)(1+0.08)(1+0.08)]= $79.38



General Equations for Compound Interest

Future Value:

Present Value:

Where:

± F is future value

± P is present value

± i is interest rate (or discount rate) ± n is number of periods



How Do We Compare Alternatives?

We need some form of equivalence

Present Value and Future Value can provide

th

at equivalence



Cash Flow Diagrams & Net Present Value

Page 867 Dieter and Schmidthttp://highered.mcgraw-hill.com/sites/dl/f ree/0072837039/595507/Chapter18Corr06_09.pdf



Net Present Value of the Costs of Machine A

Present Value of Year 0 Costs:

y $25,000


y (2000-500)/(1+0.10)^1= $1363.63


y (2000-500)/(1+0.10)^2= $1239.67


y (2000-500)/(1+0.10)^3= $1126.97


y

(2000-500)/(1+0.10)^4= $1024.52


y (2000-500-3000)/(1+0.10)^5= -$931.38

Net Present Value of the Costs:

25,000

+1363.63

+1239.67

+1126.97

+1024.52

-931.38

$ 28,823



Interest

Number of periods Payments Made Each Period

Future Value

Using Excel for Year 3:


(2000-500)/(1+0.10)^3= $1126.97



Interest

Number of periods

Payments (Costs) for Each Period

Additional Future Value

Using Excel to find the present

Value for the 5 years

of $1500 costs each year:

Present Value of the 5 years:

(2000-500)/(1+0.10)^1= $1363.63

(2000-500)/(1+0.10)^2= $1239.67

(2000-500)/(1+0.10)^3= $1126.97

(2000-500)/(1+0.10)^4= $1024.52

(2000-500)/(1+0.10)^5= $ 931.38$ 5686

0 if Payments (Costs)

made at end of period



Alternatively we can use the NPV (Net Present Value) function in Excel to

capture values of each year for this cash flow diagram.



Net Present Value of the Costs of Machine BPresent Value of Year 0 Costs:

$15,000


(4000)/(1+0.10)^1= $3636.36


(4000)/(1+0.10)^2= $3305.79


(4000+3500)/(1+0.10)^3= $5634.86

Present Value of Year 4 Costs: (4000)/(1+0.10)^4= $2732.05


(4000)/(1+0.10)^5= $2483.69

Net Present Value of the Costs:

15,000

+3636.36

+3305.79

+5634.86

+2732.05

+2483.69

$ 32,793



Net Present Value Comparison

NPV Costmachine A = $28,823

NPV Costmachine B = $32,793

Costmachine A unadjusted = $29,500 Costmachine B unadjusted = $38,500



Other Economic Issues

Depreciation and Taxes

Profitability

± Rate of return on investment (ROI)

± Payback pe

riod

± Internal rate of return



Depreciation of Capital Assets

Accounting systems assume that capitalequipment (not land) loses value over time

The loss of value of capital equipment is called

depreciation Depreciation is important in the economic

analysis of engineering projects because

depreciation can be used to reduce th

e taxesthat are paid on corporate income



Calculating Depreciation

Step 1: determine the period over which the

capital asset should be depreciated.

Step 2: determine how the depreciating value

should be distributed over the selected period



Payback Period

Furnace A Furnace B

Year Invest

K$

Operating

Costs

K$

Taxes

K$

Net

Cash

Flow

K$

Payback

K$Invest Operating

CostsTaxes Net

Cash

Flow

K$

Payback

K$

0 -325 -400

1 -432 ~168 200 -125 -363 ~199 239 -161

2 75 78



Economic Metrics

to Evaluate Projects

Return on Investment (ROI)

Payback period

Internal Rate of Return



Return on Investment (ROI)

yRatio of some desired economic outcome tothe investment for that outcome

yTypical numerators:

Annual profit before taxes

Annual profit after taxes

Annual cash flow before taxes

Annual cash flow after taxesyTypical denominator: capital investment



Payback Period

yTypical definition: Ratio of the investment tothe annual benefit giving an estimate of thetime to recover the investment

y If benefits are not uniform over time it isthe time at which the cumulative sum of thebenefits equal the investment

yTypically does not take into account t

he time-value of money



Economic Analysis

for Product Development

(Ulrich and Eppinger)

1. Build a base-case financial model

2. Perform a sensitivity analysis3. Use sensitivity analysis to understand project

trade-offs

4. Consider th

e influence of qualitative factorson project success





Step 1: Build a Base-Case Model



Step 1: Build a Base-Case Model



Annual interest divided

by number of periods

per year

Number of periods

Payments Made Each Period

Future Value

Using Excel for Q4 of Year 1:


(-2250)/(1+0.10/4)^3= -$2089





Step 2: Perform Sensitivity Analysis(e.g. 20% decrease in development costs)



Step 2: Perform Sensitivity Analysis(e.g. 25% increase in development time)



Step 2: Perform Sensitivity Analysis

Ulrich & Eppinger, Product Design and Development



Step 3: Use Sensitivity Analysis to

Understand

Project

Trade-offs



Step 3: Use Sensitivity Analysis to

Understand

Project

Trade-offs(estimate Trade-off Rules f rom sensitivity analyses)




A Question:

What are some situations when you might not

pursue an option that presents the best NPV?



Step 4: Consider the Influence of

Qualitative Factors


Interactions between the Project and the

Firm (e.g. strategic fit, risk/liability exposure)

Interactions between the Project and theMarket (e.g. competitors, customers,

suppliers)

Interactions between th

e Project and th

eMacro Environment (e.g. economic shifts,

government regulations, social trends)



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Analisis Ekonomis - Minggu 9