1. Problem Statement
We plan to buy a new medium FPSO which costs estimated around US$ 50,000,000. Initially, we don’t have any clue for how long this new asset FPSO to give positive economic value. In finding the economic life of this asset, we will know when should we have to retire the asset. So the problem is how long the economic life of this new FPSO?
Continue to discuss further using topic from my W4 posting here I want to talk about using ERR for evaluating this project. The tools as discussed in in Engineering Economy Engineering Book, chapter 5, page 178-211. This is introducing external reinvestment rate (ɛ) per period. Just like IRR, ERR is used to evaluate the economic justification of project. But this time ERR that taken into account the interest rate external at which cash flow generated over the lifecycle of project. This method is also useful for solving similar problems as stated in in problem 5-46 at this book. But, instead of using MARR = 12%, in this posting I am using ɛ = MARR 20% because as I am using real life example as described in my blog posting W4 previously.
Filed under Asyhad, Week 05
This time I continue to discuss further using topic from my previous posting on week 3 now I want to talk about laundry service further in this posting. Evaluating a single project using tools as discussed in in Engineering Economy Engineering Book, chapter 5, page 178-211. Introducing concept of Minimum Attractive Rate of Return (MARR) and Inernal Rate of Return (IRR) to see whether the business investment project should go or not.
Filed under Asyhad, Week 04