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Faculty of Engineering, Architecture and Science Department of Civil Engineering CVLCVLCVLCVL 316316316316

Faculty of Engineering, Architecture and Science Department of Civil Engineering

CVLCVLCVLCVL 316316316316 TransportationTransportationTransportationTransportation EngineeringEngineeringEngineeringEngineering WinterWinterWinterWinter 2017201720172017

Yoassry Elzohairy, Ph.D., P.Eng.

Thursday, March 9, 2017

Engineering Economic Analysis

Engineering Economic Analysis Used to estimate economic feasibility and determine preferred design. Must convert time

Used to estimate economic feasibility and determine preferred design. Must convert time streams of benefits & costs to equivalent values given a time period. Net Present Worth (NPW) or Net Present Value (NPV)= Present Value of Benefits minus Present Value of Costs

NPV = [PVB – PVC] > 0 Benefit Cost Ratio (BCR) B/C = PVB/PVC > 1

Textbook pp 558-570

2

Interest and Discount Rates

Interest and Discount Rates Interest = premium paid or received for use of money Interest rate

Interest = premium paid or received for use of money Interest rate – relates sum of money presently on hand to an equivalent sum at a future date. Thus, given P (present value) what is F (future value)? Discount rate – relates sum of money at a future date to its equivalent value at present. Thus, given F what is P? Used to compare time streams of benefits and costs

Simple vs. Compound Interest

Simple vs. Compound Interest 4
Simple vs. Compound Interest 4

Simple vs. Compound Interest

Simple vs. Compound Interest Future value, F, for P = $1000 at 8% Periods F, simple

Future value, F, for P = $1000 at 8%

Periods

F, simple i

F, compound i

 

1

$1080

$1080

2

$1160

$1166

3

$1240

$1260

4

$1320

$1360

5

$1400

$1469

10

$1800

$2159

15

$2200

$3172

20

$2600

$4661

5

6
6

Nominal (r) vs. Effective (r*) Interest Rates

Nominal (r) vs. Effective (r*) Interest Rates Compounding at other intervals than yearly; e.g., daily, monthly,

Compounding at other intervals than yearly; e.g., daily, monthly, quarterly.

Quarterly compounding of an interest rate r for a year applied to an amount A results in (1+r/4) 4 A in a year. In this case, r* satisfying

1 + r* = (1+r/4) 4 is called the effective interest rate and r is nominal rate

Example r = 0.08, r/4 = 0.02, 1+ r* = (1.02) 4 = 1.0824, r* = 0.0824 is the effective interest

rate.

Note r* > r.

Relation Between Nominal and Effective Interest Rates

Relation Between Nominal and Effective Interest Rates Given the annual nominal rate r compounded m times

Given the annual nominal rate r compounded m times a year, we can find the annual effective rate i from the relation

Given the annual nominal rate r compounded m times a year, we can find the annual

Example

Example Compute the equivalent of $1,000,000 at the end of 5 years if the annual interest

Compute the equivalent of $1,000,000 at the end of 5 years if the annual interest rate is 8% compounded semi-annually. Calculate the effective annual interest rate.

Solution:

m =2 interest periods per year r= 0.08 i = ?

i =

1

+

0.08

2

2

1

=

0.0816

or 8.16% per year

=2 interest periods per year r= 0.08 i = ? i =    1

9

Continuous Compounding

Continuous Compounding Continuous compounding represents the case when the interest period approaches zero. Given a

Continuous compounding represents the case when the interest period approaches zero. Given a nominal interest rate r under continuous compounding , the effective interest rate would be the limit of i as the number of interest periods m approaches infinity.

m r  ( m → ∞ ) r ⇒   1+  
m
r 
(
m → ∞
)
r
  1+
→ e
m
r
i
=
e
−1
10

Continuous Compounding:

Relation Between Present Value and Future Cash Flow

Relation Between Present Value and Future Cash Flow When interest is compounded continuously at a nominal

When interest is compounded continuously at a nominal interest rate r per a specified period, the relationship between future and present value separated by n periods is

between future and present value separated by n periods is The multiplier of P is known

The multiplier of P is known as the single-sum compound-amount factor (CAF’, r, n) and the multiplier of F is called the single-sum present-worth factor (PWF’, r, n).

Example

Example Compute the equivalent of $1,000,000 at the end of 5 years if the annual interest

Compute the equivalent of $1,000,000 at the end of 5 years if the annual interest rate is 8% compounded continuously. Calculate the effective annual interest rate.

e 0.08 = 1.0833
e
0.08 = 1.0833

Cash Flow Diagram (CFD)

Cash Flow Diagram (CFD) Graphic tool showing size, sign, and timing of cash flows --- helpful

Graphic tool showing size, sign, and timing of cash flows --- helpful for engineering economic analysis Horizontal line indicating uniform units of time (days or months or years or …) Each cash flow “in” (revenue or benefit) is shown as an arrow up (positive) from time line Each cash flow “out” (cost) is shown as an arrow down (negative) from time line

Cash Flow Diagram (CFD) sample

Cash Flow Diagram (CFD) sample Money in (+) Money out (-) $2000 $2000 0000 1111 2222

Money in (+) Money out (-)

$2000 $2000 0000 1111 2222 3333 TimeTimeTimeTime “0”“0”“0”“0” orororor TodayTodayTodayToday
$2000
$2000
0000
1111
2222
3333
TimeTimeTimeTime “0”“0”“0”“0” orororor
TodayTodayTodayToday (usually)(usually)(usually)(usually)

$4000

$3000

(usually)(usually)(usually)(usually) $4000 $3000 $1500 $1500 6666 4444 5555 EndEndEndEnd ofofofof

$1500

$1500

6666

4444

$4000 $3000 $1500 $1500 6666 4444 5555 EndEndEndEnd ofofofof periodperiodperiodperiod 3333

5555

EndEndEndEnd ofofofof periodperiodperiodperiod 3333 isisisis alsoalsoalsoalso beginningbeginningbeginningbeginning ofofofof periodperiodperiodperiod 4444

$3000

The Equivalent Single Sum E k of a Cash Flow at Time K

The Equivalent Single Sum E k of a Cash Flow at Time K * = the
The Equivalent Single Sum E k of a Cash Flow at Time K * = the

* = the effective interest rate i or the nominal interest rate r

Equivalent Single Sum E k of a Cash Flow at Time K * = the effective
Example
Example
17
17

17

Equal Series of Payments

Fig. A A Fig. B. Present single-payment equivalent
Fig. A
A
Fig. B. Present single-payment equivalent

Fig. C. Future single-payment equivalent

Discrete Compounding Factors

Note:
Note:

Example

Example 20
Example 20
Superposition of Cash Flows
Superposition of Cash Flows

To identify the simplest way of solving a problem of complex cash flow, consider several possible ways of decomposing and superposing the cash flow single-payment components. Example

Given benefits of $10 million that occur at the end of each of the first five years and benefits of $6 million that occur at the end of years six to nine, what is the present value? Assume an interest rate of 8% per year.

Solution

Solution 22
i = 0.08 0.08 S= 6,000,000 4,000,000 n= 9 5 P= 37,481,327.47 15,970,840.15 53,452,167.61
i =
0.08
0.08
S=
6,000,000
4,000,000
n=
9
5
P=
37,481,327.47
15,970,840.15
53,452,167.61

Homework

Homework 26
Homework 26

Design Hourly Volume(DHV)

Design Hourly Volume(DHV) Designs are typically based on the 30 t h highest hourly volume in

Designs are typically based on the 30 th highest hourly volume in a year (abbreviated as 30 HV). This would be a big pain to obtain for most projects More practical, is determining what % of Average Daily Traffic (ADT) the design hour accounts for.

Textbook pp150-152

27

Relationship of Highest Hourly Volume and ADT on Rural Arterials K-Factor Concept 28
Relationship
of Highest
Hourly
Volume and
ADT on
Rural
Arterials
K-Factor
Concept
28

A Few Terms Explained

A Few Terms Explained The curve steepens quickly to the left of the point showing 30th

The curve steepens quickly to the left of the point showing 30th highest hour, indicating much higher volumes if we include only a few more of the hourly volumes. The curve flattens to the right, indicating many hours in which the volume is not much less than 30 HV.

K-Factors
K-Factors

Typically between 8 and 13% Often Agencies have there own “K-tables” Reasonable applications

Estimating number of lanes

Poor applications

Estimating design volumes at signalized intersections (signal design is very sensitive to turn %)

Peak Hour Factor
Peak Hour Factor

Accounts for the variation in the traffic stream within an hour Relationship between peak 15 minutes and peak hour

Table 2.2 Traffic volumes and flow rates on I-35W

PHF =

V

4 V

15

1623 PHF = = 0.82 4 × ( 1980 / 4 ) 1623 4 PHF
1623
PHF =
= 0.82
4
× (
1980 / 4
)
1623
4
PHF =
= 0.82
(
495 )

15 minutes beginning 7:20 AM 7:35 AM 7:50 AM 8:05 AM

Vehicle Count

Flow rate

389

vehicles

1556

vph

495

vehicles

1980

vph

376

vehicles

1504

vph

363

vehicles

1452

vph

7:20-8:20AM

1623 vehicles

1623

vph

31

PHF
PHF

PHF <=1.0 PHF >=0.25 (all vehicles in peak 15 minutes) Facilities operating near capacity have PHF near 1.0

PHF =

V

q

Traffic

Traffic  
 

Count

   
     
     
 
   

30

50

40

30

 
 
  One Hour  

One Hour

 
  One Hour  

Traffic

Traffic  
 
Traffic  

Count

   
   

50

50

50

50

 
 
    One Hour    
 

One Hour

 
    One Hour    
 
   

V

q

32

Example for calculating PHF

Example for calculating PHF Assume 100, 150, 320, 50 vehicles are counted during four 15-min intervals

Assume 100, 150, 320, 50 vehicles are counted during four 15-min intervals

PHF =

(

100 150 320 50

+

+

+

)

320 * 4

=

620

1280

= 0 48

.

Assume the extreme case where 250 vehicles are counted during a 15-min interval and no vehicles were observed during the rest of the hour

PHF =

(

250

)

=

250

250 4 1000

*

= 0 25

.

Basic Terminology

Basic Terminology Volume Number of vehicles passing a point on a highway or highway lane during

Volume

Number of vehicles passing a point on a highway or highway lane during ONE HOUR, expressed as vehicles per hour

Flow rate

Number of vehicles passing a point on a highway or highway lane during SOME PERIOD OF TIME LESS THAN ONE HOUR, expressed as an equivalent rate in vehicle per hour

Peak Hour/PHF Determination Good Exam Topic

Start Stop 15 Min Count 1 Hour Sum 0730 0745 25 115 0745 0800 30
Start
Stop
15 Min
Count
1 Hour
Sum
0730
0745
25
115
0745
0800
30
120
PHF=125/4*35
0800
0815
35
125
= 0.89
0815
0830
25
100
0830
0845
30
0845
0900
35
0900
0915
10

35

Average Annual Daily Traffic (AADT)

Average Annual Daily Traffic (AADT) It is the average 24-hour traffic volume at a given location

It is the average 24-hour traffic volume at a given location over a full 365-day year - that is, total number of vehicles passing the site in a year divided by 365

AADT to Design Flow Rate
AADT to Design Flow Rate

Design Flow Rate = AADT × K × D ÷ PHF

K – Percent of AADT that approximates design hour volume D – Proportion of Design Hour Volume traveling in the predominant direction PHF – Ratio of Design Hour Volume to peak 15-minute flow rate in the Design Hour

Homework

Homework 38
Homework 38