Engineering Economic Analysis

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52 ENGINEERINGCOSTSANDCOSTESTIMATING

total cash flow per year would simplify the cash flow diagram. However, it is better to show

each individually, to ensure a clear connection from the problem statement to each cash

flow in the diagram.

Drawing Cash Flow 'Diagrams with a Spreadsheet

One simple way to draw cash flow diagrams with "arrows" proportional to the size of the

cash flows is to use a spreadsheet to draw a stacked bar chart. The data for the cash flows is

entered, as shown in the table part of Figure 2-8. To make a quick graph, select cells B 1 to

D8, which are the three columns of the cash flow. Then select the graph menu and choose

column chart and select the stack option. Except for labeling axes (using the cells for year

o to year 6), choosing the scale for they axis, and adding titles, the cash flow diagram is

done. Refer to the appendix for a review of basic spreadsheet use.(Note:a bar chart labels

periods rather than using anxaxis with arrows at times 0, 1,2 )

1

2

:3

4

5

6

7

, 8

9

:~io

11

''''1''i'.

13

"14

15

16

'11='

18

19

"'20

I 21

~; 22

E F

$10

$0

~ -$10

§

gj -$20o

.s -$30'-'

~o -$40

Ii:: -$50..c::

U~ -$60

-$70

-$80 2

o 3 5 6

Year

1 4

FIGURE 2-8 Example of cash flow diagram in spreadsheets.

Summary

This chapter has introduced the following cost concepts: fixed and variable, marginal and

average, sunk, opportunity, recurring and nonrecurring, incremental, cash and book, and

life-cycle. Fixed costs are constant and unchanging as volumes change, while variable

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A B C D

Year Capital Costs O&M Overhaul

0 -^80000

1 -12000

2 -12000

3 -12000 I -25000

4 -12000

5 -12000

6 10000 -12000