ESD.70J Engineering EconomyCourse InformationClass outlineExcel versionsRecommended versionsCourse MaterialsExcel basicsCase: Big vs. Small setupSlide 9Slide 10Slide 11Slide 12Slide 13Manual vs. automatic calculationsMore learning materialNext session…ESD.70J Engineering Economy Module - Session 0 1ESD.70J Engineering EconomyFall 2011Session ZeroXin Zhang – [email protected]. Richard de Neufville – [email protected]://ardent.mit.edu/real_options/ROcse_Excel_latest/Excel_Class.htmlESD.70J Engineering Economy Module - Session 0 2Course Information Credits: *3 units* to those that want them, otherwise students can register as listeners*or simply sit in on class. Website: all materials can be downloaded from the following,http://ardent.mit.edu/real_options/ROcse_Excel_latest/Excel_Class.html Time and Location: MTWR EVE (5-7.30 PM)* (32-155) ** Excel materials: credit to former TA - Michel CardinESD.70J Engineering Economy Module - Session 0 3Class outline1. Objective: get you up to speed for Session 1!•Excel versions and languages•Excel basics for ESD.70•Case introduction•More learning materialESD.70J Engineering Economy Module - Session 0 4Excel versions•Versions currently “in use”–PC: 2000, XP or 2003, 2007–Mac: 2004, 2008–Open source: Open Office Calc (see website)•Many, many languages–Chinese, English, French, Japanese, Spanish…–Obviously cannot support all (see website for handy tips in French and Spanish)ESD.70J Engineering Economy Module - Session 0 5Recommended versions•Class supported in Excel 2007 for PC, and Excel 2004 for Mac–Excel 2007 widely used on PC–Excel 2008 for Mac does not support Solver and other functionalities required for class•Make sure you have one of those installed!•For MIT students, get online for a free copy of softwarehttp://ist.mit.edu/services/software/available-softwareESD.70J Engineering Economy Module - Session 0 6Course Materials•Excel spreadsheetsStep1: file [ESD70session# –1.xls] is setup before the classStep2: in class exercise solving the case with tutorCells marked as are for you to fillStep3: refer to file [ESD70session# –2.xls] which reflects all the work done in classESD.70J Engineering Economy Module - Session 0 7Excel basics Open ESD70session0-1.xlsESD.70J Engineering Economy Module - Session 0 8Case: Big vs. Small setup•Building a computer plant•Deterministic demand projections for years 1, 2 and 3 are 300,000, 600,000, and 900,000 respectively•No sales in year 4 or thereafter•Plan A – a big plant; Plan B – one small plant each year; •Plants take a few months to construct•Big plant capacity of 900,000 with capital cost of $900 million•Each small plant capacity of 300,000 with capital cost of $300 million•No salvage value for Plan A; $300 million salvage value for Plan B•Discount rate for Plan A is 9%, and 8% for Plan B [why?]•The company will sell each computer for $2,000 •Variable cost for each computer, for Plan A is $1,280 due to economies of scale; Variable cost for Plan B is $1,500•See “Entries” Worksheet…Class Structure with the Big vs. Small CaseSession 0: Extract all values from the case and input into ExcelSession 0Class Structure with the Big vs. Small CaseSession 1: Sensitivity Analysis by varying cost and discount rateSession 0Session 1Class Structure with the Big vs. Small CaseSession 0Session 1Session 2Session2: Monte-Carlo Simulation by simulating demand with a uniform distributionClass Structure with the Big vs. Small CaseSession3: Modeling uncertainty using different stochastic models and probability distributionsSession 0Session 1Session 2Session 3Class Structure with the Big vs. Small CaseSession4: Introducing flexibility: Capacity(t) ~ f{Capacity (t-1), Demand(t-1)}Session 0Session 1Session 2Session 3Session 4ESD.70J Engineering Economy Module - Session 0 14Manual vs. automatic calculations•How to set it up–Mac: Excel Preference Calculations–PC: Excel Excel options Formulas•Shortcuts –“F9” on PC and “command =“ on MacESD.70J Engineering Economy Module - Session 0 15More learning material•Excel 2004 for Mac:http://web.mit.edu/macardin/Public/docsESD70/DiscoveringMicrosoftOffice2004.pdf•Excel 2007 for PC:http://office.microsoft.com/en-us/training/HA102255331033.aspx•Excel hotkeyshttp://allhotkeys.com/microsoft_excel_hotkeys.htmlESD.70J Engineering Economy Module - Session 0 16Next session…We begin the main session about NPV, Sensitivity Analysis and Data TablesTAKE A SHORT BREAK AND COME
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