Engineering is $$$

1. Engineering is $$$

2. A dollar today is worth more than a dollar tomorrow: Compound Interest P0 = principal 0 time units into the future (i.e., today) Pn = principal n time units into the future where r is the annual interest rate

3. A dollar today is worth more than a dollar tomorrow: Present Value: where r is the annual interest rate US treasury bills sold at “discount”, so that when the bill matures, you receive face value. If you buy a one-year $10,000 bill with an interest rate of 3%, how much should you expect to pay for it?

4. A dollar today is worth more than a dollar tomorrow: Effective Interest: Invest $10,000 in company stock. Ten years later, you sell the stock for $20,000. What was your effective annual rate of return?

5. Compound interest—different forms Interest compounded once per year Interest compounded q times per year Interest compounded continuously

6. A Dutchman Peter Inuit bought Manhattan from the Canarsie Indians for $23 in 1626. Who got robbed. . .? Assuming funds were invested at 6% compounded monthly since 1626. The investment today would be worth $23*(1+.06/12)(12*(2010-1626)) = $220 *109

7. DJIA 1900-2010

8. Lease vs. Buy? Example: Honda Pilot EX AWD price = $33,595 (Chicago, 2006 figures) Purchase with 20% down and a 36 month loan @6.75% down payment = $ 6,719 monthly payment = $ 825 spent after 36 mo = $36,419 residual value = $23,701 total cost = $12,718 Lease for 36 months down payment = $ 2,000 monthly payment = $ 359 spent after 36 mo = $14,565 residual value = $0 total cost = $14,565

9. Annuities: Equal payments paid (or received) over n time periods Future value of an annuity: where Pn = the value of the annuity after n payments of P Multiply both sides by (1+r) to obtain Subtract the first equation from the second to obtain

10. Annuity example: Each year for 20 years you deposit $1000 into an annuity at an interest rate of 5%. What will be its value in 20 years?

11. Annuity example: You win $1M in a lottery which pays you in 20 annual installments of $50K? What’s it worth $$ today, i.e., what is its present value? Assume 5% interest. but, So,

12. Opportunity Cost The opportunity cost of a decision is based on what must be given up (the next best alternative) as a result of the decision. Any decision that involves a choice between two or more options has an opportunity cost. Applications of Opportunity Cost The concept of opportunity cost has a wide range of applications including: Consumer choice Production possibilities Cost of capital Time management Career choice Analysis of comparative advantage

13. Payback Period The length of time required to recover the cost of an investment. Shorter paybacks are better investments. Problems with this metric: 1. It ignores any benefits that occur after the payback period and, therefore, does not measure profitability. 2. It ignores the time value of money.

14. Your name Single most important asset that you own Permanent – it follows you through your life Important in all societal interactions Attached to every personal achievement and failure Identity

15. Honesty Reliability Competence Truthfulness Consistency Fair Play Education Ways to enhance this asset

16. Dishonesty Cheating Trickery Criminal Activity Unethical Behavior Things to tarnish this asset

17. Second most important asset you own Permanent Important in almost all activities involving money Taxes Credit cards Retirement Benefits Medical Records Social Security Number

18. Used by insurance companies to determine rates Used by state governments to establish property tax rates Suggests social status Determines educational opportunities for public K-12 schools Where you live

19. Who you know Where you went to school Other Identity Influences

20. Moral Principles or values Code of Conduct Recognition of “good” or “right” vs. “bad” or “wrong” System or code of morals for a religion, group or profession Personal code of conduct based on respect for one’s self, others, and one’s surroundings A set of principles and values that govern behavior to accord with a notion of morality Ethics

21. Laws attempt to define unambiguous, enforceable rules that parallel a culture’s morality Money muddies the waters of legal vs. moral. Legal vs. Moral

22. Identity independent of those who run the company Trademarks, Intellectual property are corporate assets Unlike personal reputations, can erase problems by dissolving and reforming The bottom line – money Short term vs. long term views Corporations/Companies

23. You have borrowed a knife from a friend who, since has turned homicidal. He wants it returned. On the one hand you have a moral obligation to return what you have borrowed. On the other hand you have a moral obligation to protect those around you. Dilemma posed by Plato in The Republic

24. As a medical representative for a friend who lays dying in the hospital, you are asked whether you want life support removed. Your friend could live indefinitely in a coma with support, but would die within 24 hours without it. Hospital costs are $1000/day. You know that both yourself and several other friends are named in his will.

25. An energy corporation must be responsive to its stockholders. Extracting coal using strip mining is clearly most profitable, but the terrain will be permanently compromised. Shaft mining is much less profitable, but will preserve the landscape.

26. A family is 6months behind in paying its rent (husband lost job, child became critically ill). Landlord has the legal right to evict.

27. An engineering firm has won an award to build a bridge to specification for a set price. Due to misestimating costs, if the firm builds the bridge as specified the company will go bankrupt. However, if the firm uses inferior materials and reduces the safety factor in the bridge design, it can make a profit.

28. An automobile manufacturer discovers a significant design flaw in a new model that, under the right circumstances, could cause the car to flip at high speed. But the chances are slim. Issuing a recall would be very expensive and would probably negatively affect future sales. Ignoring the flaw and hoping that resulting accidents could be blamed by driver error would save profits and the model line.