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Engineering Optimization: Applications, Methods, and Analysis
By
R. Russell Rhinehart
R. Russell Rhinehart
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ISBN:
9781118936337
No. of Pages:
770
Publisher:
ASME Press
Publication date:
2018

In optimizing something related to economics, the objective function, the statement of what is to be optimized, is often termed a profitability index. A viewpoint of the categories in economic optimization reveals two classes of considerations—the one-time initial capital investment (the purchase cost of an item) and the annual costs and income associated with operating the item. These yield three types of considerations—the one-time initial capital investment, the annual cash flow, and a combination of capital and annual cash flow. A combination of capital and annual cash flow is often preferred, and it should account for the time value of money and the schedule of income and outlay. Although there are several such metrics, and a particular enterprise might prefer one over another, they have similar aspects, and one example is adequate to understand economic optimization. I’ll present a technique termed net present value (NPV). Often it is termed present value (PV) or present worth (PW).

20.1
Introduction
20.2
Annual Cash Flow
20.3
Including Risk as an Annual Expense
20.4
Capital
20.5
Combining Capital and Nominal Annual Cash Flow
20.6
Combining Time Value and Schedule of Capital and Annual Cash Flow
20.7
Present Value
20.8
Including Uncertainty
20.9
Takeaway
20.10
Exercises
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