Engineering economic analysis - Revision history

Tahirkapoor: /* Example – Comparing Interest Rate and WACC methods */

2015-03-08T22:57:49Z

Example – Comparing Interest Rate and WACC methods

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	Using these values, the cost of equity can be calculated:		Using these values, the cost of equity can be calculated:

	<math> r_e = r_f + /betaRP = 2.24 +0.759.37 = 9.27%</math>		<math> r_e = r_f + \betaRP = 2.24 +0.759.37 = 9.27%</math>

	With all necessary parameters obtained, we can estimate Dow Chemical’s WACC:		With all necessary parameters obtained, we can estimate Dow Chemical’s WACC:
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	Using the 10 year AA corporate bond yield as an interest rate results in a substantial difference in net present value than using Dow Chemical’s WACC. This example highlights the need to accurately estimate the discount rate to achieve a reasonable economic evaluation.		Using the 10 year AA corporate bond yield as an interest rate results in a substantial difference in net present value than using Dow Chemical’s WACC. This example highlights the need to accurately estimate the discount rate to achieve a reasonable economic evaluation.

	==Conclusion==		==Conclusion==

Tahirkapoor: /* References */

2015-03-08T22:56:08Z

References

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	# Biegler L, Grossmann I, Westerberg A, ''Systematic Methods of Chemical Process Design'', Prentice-Hall: Upper Saddle River, 1997.		# Biegler L, Grossmann I, Westerberg A, ''Systematic Methods of Chemical Process Design'', Prentice-Hall: Upper Saddle River, 1997.


	#Douglas J, Conceptual Design of Chemical Processes, McGraw-Hill: New York, 1988.		#Douglas J, Conceptual Design of Chemical Processes, McGraw-Hill: New York, 1988.


	# "EDGAR Search Results." EDGAR Search Results. U.S. Securities and Exchange Commission, n.d. Web. 06 Feb. 2015.		# "EDGAR Search Results." EDGAR Search Results. U.S. Securities and Exchange Commission, n.d. Web. 06 Feb. 2015.


	# Fernandes N. 2014, Finance for Executives: A Practical Guide for Managers, p. 32.		# Fernandes N. 2014, Finance for Executives: A Practical Guide for Managers, p. 32.
	#"DCF Analysis: Calculating The Discount Rate \| Investopedia." Investopedia. Investopedia, 03 Jan. 2006. Web. 06 Feb. 2015.		#"DCF Analysis: Calculating The Discount Rate \| Investopedia." Investopedia. Investopedia, 03 Jan. 2006. Web. 06 Feb. 2015.

	#Form 1120 Instructions for 2012 page 17		#Form 1120 Instructions for 2012 page 17


	# Frank, Murray; Shen, Tao (2012). "Investment, Q, and the Weighted Average Cost of Capital".http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2014367.		# Frank, Murray; Shen, Tao (2012). "Investment, Q, and the Weighted Average Cost of Capital".http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2014367.

	# Miles J, Ezzell J. (September 1980). "The weighted average cost of capital, perfect capital markets and project life: a clarification". Journal of Financial and Quantitative Analysis 15 (3): 719–730.doi:10.2307/2330405.		# Miles J, Ezzell J. (September 1980). "The weighted average cost of capital, perfect capital markets and project life: a clarification". Journal of Financial and Quantitative Analysis 15 (3): 719–730.doi:10.2307/2330405.

	# Peters M, Timmerhaus K, "Plant Design and Economics for Chemical Engineers", 5th Ed., McGraw-Hill: New York, 2003		# Peters M, Timmerhaus K, "Plant Design and Economics for Chemical Engineers", 5th Ed., McGraw-Hill: New York, 2003

	# Sieder W, Seader J, Lewin D, ''Process Design Principles: Synthesis, Analysis, and Evaluation'', Wiley: New York, 2004.		# Sieder W, Seader J, Lewin D, ''Process Design Principles: Synthesis, Analysis, and Evaluation'', Wiley: New York, 2004.


	# Towler G, Sinnott R, ''Chemical Engineering Design: Principles, Practice and Economics of Plant and Process Design'', Elsevier, 2012.		# Towler G, Sinnott R, ''Chemical Engineering Design: Principles, Practice and Economics of Plant and Process Design'', Elsevier, 2012.



	# Turton R, Bailie R, Whiting W, Shaeiwitz J, ''Analysis, Synthesis, and Design of Chemical Processes'', Prentice Hall: Upper Saddle River, 2003.		# Turton R, Bailie R, Whiting W, Shaeiwitz J, ''Analysis, Synthesis, and Design of Chemical Processes'', Prentice Hall: Upper Saddle River, 2003.

Tahirkapoor: Updated References

2015-03-08T22:55:27Z

Updated References

← Older revision		Revision as of 17:55, 8 March 2015
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	==References==		==References==

			# Biegler L, Grossmann I, Westerberg A, ''Systematic Methods of Chemical Process Design'', Prentice-Hall: Upper Saddle River, 1997.


			#Douglas J, Conceptual Design of Chemical Processes, McGraw-Hill: New York, 1988.


⚫	#Form 1120 Instructions for 2012 page 17
	# "EDGAR Search Results." EDGAR Search Results. U.S. Securities and Exchange Commission, n.d. Web. 06 Feb. 2015.		# "EDGAR Search Results." EDGAR Search Results. U.S. Securities and Exchange Commission, n.d. Web. 06 Feb. 2015.

⚫	# Miles, ~~James A.;~~ Ezzell~~, John~~ R. (September 1980). "The weighted average cost of capital, perfect capital markets and project life: a clarification". Journal of Financial and Quantitative Analysis 15 (3): 719–730.doi:10.2307/2330405.

	# Fernandes, ~~Nuno~~. 2014, Finance for Executives: A Practical Guide for Managers, p. 32.		# Fernandes N. 2014, Finance for Executives: A Practical Guide for Managers, p. 32.
	#"DCF Analysis: Calculating The Discount Rate \| Investopedia." Investopedia. Investopedia, 03 Jan. 2006. Web. 06 Feb. 2015.		#"DCF Analysis: Calculating The Discount Rate \| Investopedia." Investopedia. Investopedia, 03 Jan. 2006. Web. 06 Feb. 2015.

		⚫	#Form 1120 Instructions for 2012 page 17


	# Frank, Murray; Shen, Tao (2012). "Investment, Q, and the Weighted Average Cost of Capital".http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2014367.		# Frank, Murray; Shen, Tao (2012). "Investment, Q, and the Weighted Average Cost of Capital".http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2014367.

		⚫	# Miles J, Ezzell J. (September 1980). "The weighted average cost of capital, perfect capital markets and project life: a clarification". Journal of Financial and Quantitative Analysis 15 (3): 719–730.doi:10.2307/2330405.
	7. G.P. Towler, R. Sinnott, ''Chemical Engineering Design: Principles, Practice and Economics of Plant and Process Design'', Elsevier, 2012.

		⚫	# Peters M, Timmerhaus K, "Plant Design and Economics for Chemical Engineers", 5th Ed., McGraw-Hill: New York, 2003

		⚫	# Sieder W, Seader J, Lewin D, ''Process Design Principles: Synthesis, Analysis, and Evaluation'', Wiley: New York, 2004.


	8. ~~L.T.~~ ~~Biegler~~, ~~I.E.~~ ~~Grossmann~~, ~~A.W.~~ ~~Westerberg~~, ~~''Systematic~~ ~~Methods~~ of ~~Chemical~~ Process Design'', ~~Prentice-Hall: Upper Saddle River~~, ~~1997~~.		# Towler G, Sinnott R, ''Chemical Engineering Design: Principles, Practice and Economics of Plant and Process Design'', Elsevier, 2012.

⚫	9. ~~W.D.~~ Sieder, ~~J.D.~~ Seader, ~~D.R.~~ Lewin, ''Process Design Principles: Synthesis, Analysis, and Evaluation'', Wiley: New York, 2004.

	10. R.T. Turton, R.C. Bailie, W.B. Whiting, J.A. Shaeiwitz, ''Analysis, Synthesis, and Design of Chemical Processes'', Prentice Hall: Upper Saddle River, 2003.
⚫	~~11. M.S.~~ Peters, ~~K.D.~~ Timmerhaus, "Plant Design and Economics for Chemical Engineers", 5th Ed., McGraw-Hill: New York, 2003

	~~12.~~ J~~.M.~~ ~~Douglas~~, ~~Conceptual~~ Design of Chemical Processes, ~~McGraw-Hill~~: ~~New~~ ~~York~~, ~~1988~~		# Turton R, Bailie R, Whiting W, Shaeiwitz J, ''Analysis, Synthesis, and Design of Chemical Processes'', Prentice Hall: Upper Saddle River, 2003.

Tahirkapoor at 22:48, 8 March 2015

2015-03-08T22:48:29Z

← Older revision		Revision as of 17:48, 8 March 2015
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	<math> NPV = 93.25 </math>		<math> NPV = 90.73 </math>


⚫	A Net Present Value of 93.25 was obtained.

		⚫	A Net Present Value of 90.73 was obtained.


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	After WACC is obtained, we can compare the NPV using the WACC as the discount rate vs using the 10 year AA corporate bond rate as the discount rate.		After WACC is obtained, we can compare the NPV using the WACC as the discount rate vs using the 10 year AA corporate bond rate as the discount rate.

	The NPV using the 10 year AA corporate bond rate of 2.78% was found to be 93.25 in the previous example.		The NPV using the 10 year AA corporate bond rate of 2.78% was found to be 90.73 in the previous example.

	Calculate the NPV using a WACC of 6.81%		Calculate the NPV using a WACC of 6.81%
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	<math> NPV = \frac{-45} {\left( 1+0.0681 \right) ^1} + \frac{-40} {\left( 1+0.0681 \right) ^2}+ \frac{23.39} {\left( 1+0.0681 \right) ^3}+ \frac{26.35} {\left( 1+0.0681 \right) ^4} + \text{. . . .} + \frac{18.46} {\left( 1+0.0681 \right) ^{11}}+ \frac{18.46} {\left( 1+0.0681 \right) ^{12}} </math>		<math> NPV = \frac{-45} {\left( 1+0.0681 \right) ^1} + \frac{-40} {\left( 1+0.0681 \right) ^2}+ \frac{23.39} {\left( 1+0.0681 \right) ^3}+ \frac{26.35} {\left( 1+0.0681 \right) ^4} + \text{. . . .} + \frac{18.46} {\left( 1+0.0681 \right) ^{11}}+ \frac{18.46} {\left( 1+0.0681 \right) ^{12}} </math>

	<math> NPV = 59.29 </math>		<math> NPV = 55.51 </math>


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	\|+ '''Comparing NPV using Interest Rates and WACC'''		\|+ '''Comparing NPV using Interest Rates and WACC'''
	\| WACC		\| WACC
	\| 59.29		\| 55.51
	\|-		\|-
	\| 10 Year AA Corporate Bond Rate		\| 10 Year AA Corporate Bond Rate
	\| 93.25		\| 90.73
	\|}		\|}

Tahirkapoor: Added to investment incentives, added example on calculating NPV and added example comparing WACC and Interest rates when calculating NPV

2015-03-08T22:42:16Z

Added to investment incentives, added example on calculating NPV and added example comparing WACC and Interest rates when calculating NPV

Show changes

Tahirkapoor at 19:28, 6 March 2015

2015-03-06T19:28:04Z

← Older revision		Revision as of 14:28, 6 March 2015
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	! $ 93.25		! $ 93.25
	\|-		\|-
	\| Net Present Value Using WACC of 10.86%		\| Net Present Value Using WACC of 7.01%
	\| $ 33.68		\| $ 33.68
	\|}		\|}

Tahirkapoor at 04:01, 2 March 2015

2015-03-02T04:01:15Z

Show changes

Tahirkapoor: Added section on estimating discount rate and added to taxes section

2015-02-06T23:10:45Z

Added section on estimating discount rate and added to taxes section

Show changes

Jian at 16:59, 26 January 2015

2015-01-26T16:59:12Z

← Older revision		Revision as of 11:59, 26 January 2015
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	Authors: Michael Gleeson,<sup> [2014] </sup> Sean Kelton,<sup> [2014] </sup> Thomas Considine,<sup> [2014] </sup> and Tahir Kapoor<sup> [2015] </sup>		Authors: Michael Gleeson,<sup> [2014] </sup> Sean Kelton,<sup> [2014] </sup> Thomas Considine,<sup> [2014] </sup> and Tahir Kapoor<sup> [2015] </sup>

	Stewards: David Chen, Jian Gong, Fengqi You		Stewards: David Chen, Jian Gong, and Fengqi You

	Date Presented: Feb. 22, 2014		Date Presented: Feb. 22, 2014

Jian: add an author and a steward

2015-01-26T16:22:36Z

add an author and a steward

← Older revision		Revision as of 11:22, 26 January 2015
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	Authors: Michael Gleeson, Sean Kelton, Thomas Considine ~~(ChE~~ ~~352~~ in ~~Winter~~ ~~2014)~~		Authors: Michael Gleeson,<sup> [2014] </sup> Sean Kelton,<sup> [2014] </sup> Thomas Considine,<sup> [2014] </sup> and Tahir Kapoor<sup> [2015] </sup>

	~~Steward~~: David Chen, Fengqi You		Stewards: David Chen, Jian Gong, Fengqi You

	Date Presented: Feb. 22, 2014		Date Presented: Feb. 22, 2014