CLO1. Solve problems involving interest and the time value of money
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Engineering is the profession in which knowledge of the mathematical and natural sciences gained by study experience and practice is applied with judgment to develop ways to utilize economically the material and forces of nature for the benefit of mankind.
Engineering Economics is a subject of vital importance to Engineers. This subject helps one understand the need for the knowledge of Economics for being an effective manager and decision-maker.
This subject is composed of different topics as shown below:
CLO1. Solve problems involving interest and the time value of money
MODULE 1: Fundamental Concepts of Engineering Economy
MODULE 1: Fundamental Concepts of Engineering Economy
ENGINEERING ECONOMY involves formulating, estimating, and evaluating the expected economic outcomes of alternatives designed to accomplish a defined purpose. Mathematical techniques simplify the economic evaluation of alternatives. (formulas and techniques used in engineering economics are applicable to all types of money matters).
In this module, I learned the basic concepts in economics wherein it involves accomplished using a structured procedure and mathematical modeling techniques. To be specific, I realized that there are different concepts in decision making such as Marginal Cost as it is the total of variable costs, i.e., prime cost plus variable overheads. It is based on the distinction between fixed and variable costs. Fixed costs are ignored and only variable costs are taken into consideration for determining the cost of products and value of work-in-progress and finished goods. Another concept is about sunk Costs which is an irrecoverable cost and is caused by the complete abandonment of a plant. It is the written-down value of the abandoned plant less its salvage value. Such costs are historical which are incurred in the past and are not relevant for decision-making and are not affected by increase or decrease in volume. Thus, expenditure that has taken place and is irrecoverable in a situation is treated as a sunk cost.
Another thing that is reflected in my mind is the ideology regarding the present economy. As most of us know, Present economy studies are engineering economic analyses where alternatives for accomplishing a specific task are being compared over one year or less and the influence of time on money can be ignored.
Overall, in this topic, I am reflected with different fundamental principles that incorporate the course itself.
There is no activity or assignment on this topic as it is just talking about the basic concepts. Still, it is evident in this topic that I realized the importance and value of the course itself.
MODULE 2: Interest and Money-Time Relationship
MODULE 2: Interest and Money-Time Relationship
Interest refers to money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt. In addition, When interest over a specific time unit is expressed as a percentage of the original amount (principal), the result is called the interest rate or rate of return (ROR).
I learned in this module that there are different types of interest. One of which is the simple interest. Simple interest is calculated using the principal only, ignoring any interest accrued in preceding interest periods. The total simple interest over several periods is computed as
F=P(1+i)^n
where: I – interest P – principal i – interest rate expressed in decimal form n – number of interest period; years, months or days.
One problem that was stuck in my mind in this problem set would be item #2 regarding loans because most of us knew the consequences of having a loan and that is regarding the interest that is charged. This is present issue, it may sound bad, but as long as we know how to solve for the interest, then we can easily determine how much money should be paid in the future.
Another type of Interest is Compound Interest. For compound interest, the interest accrued for each interest period is calculated on the principal plus the total amount of interest accumulated in all previous periods.
F=P(1+i)^n
where: F – total amount P – principal i – interest rate expressed in decimal form n – number of periods
One problem that was that I can reflect on in this problem set 2 would be item #2 regarding investment because for me, investment is another way to earn. Instead of saving in a piggy bank, why don't you take a percentage of what you earn in an investment. Just like in the question, the money doubled when you invest. We can understand the process by simply incorporating the formula to keep track of the progress.
Upon learning the basics, I learned that money-time relationship doesn't only be applied in a short basis but for a longer one since it is applied in such industries like business, etc.
It is evident in this topic that I solve problems involving interest and the time value of money. As it is one of the early topics, I find myself engaged based on the reflective learnings that I had in this topic.
Module 3: Economic Study Methods
Module 3: Economic Study Methods
Economic methodology, broadly conceived, is the study of how economics functions, how it could function, and how it should function and of the various presuppositions and conditions of all these. In this topic, we cannot easily solve problems regarding the economy without the concept regarding the cash flow diagrams. To define, Cash Flow Diagram is the easiest way to approach problems in economic analysis is the graphical representation of cash flows drawn on a time scale.
This module is composed of different topics. The first one is regarding Annuity. To define, an annuity is defined as a series of equal payments occurring at equal intervals of time. It is composed of different types, such as ordinary annuity, deferred annuity, annuity due, perpetuity and lastly, compounded continuously.
A sample problem that was that I can reflect on in this problem sets would be item #2 in the problem set 4C or annuity due. The problem is talking about Margie who wishes to have 3 million pesos when she retires 18 years from now. If she can receive 5% annual interest, the question is that how much must she set aside in each of 18 equal annual beginning of year deposit? This problem made me realize the importance of paying for you to benefit in the future. As for Margie, I'm so happy that he/she gets to live a wonderful life full of knowledge regarding annuities. By incorporating the required formulas, we can also be like him/her.
It is evident in this topic that I solve problems involving interest and the time value of money. As it is one of the early topics, I find myself engaged based on the reflective learnings that I had in this topic.
Even though I got a low score in this quiz, the learnings are still evident since I got a correct answer and didn't left the rest blanked.
Another topic that is discussed in this module is regarding capitalized cost, amortization, and uniform arithmetic gradient. I learned the difference of the three ideologies. To differentiate, Capitalized Cost is the sum of the first cost and the present worth of all costs of replacement, operation, and maintenance for a long time or forever. On the other hand, Amortization is any method of repaying a debt, the principal and interest included, usually by a series of equal payments at equal intervals of time. Lastly, uniform arithmetic gradient one wherein the cash flow changes (increases or decreases) by the same amount in each cash flow period.
Overall, I learned in this module that economic study allows us to understand past, future, and current models and apply them to societies, governments, businesses, and individuals.
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