MIT 1 011 - Lecture Slides (5 pages)

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Lecture Slides



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Lecture Slides

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Lecture Notes


Pages:
5
School:
Massachusetts Institute of Technology
Course:
1 011 - Project Evaluation

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MIT Civil Engineering 1 011 Project Evaluation 1 011Project Evaluation Comparing Costs Benefits Spring Term 2003 What Is a Project For the planner dreamer A vision a dream or a hope A monument A way to solve a problem Carl D Martland Basic Question Are the future benefits large enough to justify the costs of the project Present Future and Annual Worth Internal External Rates of Return For the construction company A specific task to be completed within a specific time A way to make money through construction For the owner Potential benefits over the life of the project A way to make money through operation A monument For others Potential improvement in opportunities environment etc Potential disruptions and degradation in environment How Do We Justify a Project Cash Flow of a Typical CEE Project Is this project worthwhile 50 Are the benefits greater than the costs Are MY benefits greater than MY costs Can similar benefits be achieved more efficiently by some other approach Is this the best place to allocate resources Do other projects have greater payoff Are other types of benefits more important Evaluating a Time Stream of Monetary Costs Benefits Key concepts Time value of money Risk vs required return Present Worth Net Present Value Equivalence for PW FW and AW Project Life 30 Millions of Dollars Is this the best way to achieve these benefits either engineering institutional options 40 20 10 0 10 20 30 40 Year Present Worth Net Present Value The Present Worth of a project is commonly referred to as its Net Present Value The NPV for the project is obtained by summing the discounted benefits for each year using a discount rate i MARR NPV of Project PW Bt Ct 1 i t We know that this NPV can be transformed into an equivalent annual or future worth Carl D Martland Page 1 MIT Civil Engineering 1 011 Project Evaluation Equivalent PW AW and FW Reduce all costs and benefits to time 0 Compute the equivalent time stream of costs and benefits over the life of the project using



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