Industrial Engineers - What do I use for "i"

[Christine74]

When I took Engineering Economic Analysis in college, for every problem they gave you the value to use for the interest i (usually 10%). I was somewhat surprised by this because this value is so critical in solving the problem.

So how do I know what to use for i?

Thanks.

 

[Curmudgeon]

Well, the proper value for 'i' is always a very touchy topic. An (overly) simplified method is to look at your next best alternative rates available. In other words, are you *borrowing* money? - -then use the rates that you get from your financing institution(s). Or are you looking at value of doing a project? - -Then you may be looking at the best rates you could get by *investing* your money (rather than doing the project). For a more in-depth analysis, review with your finance managers.

Curmudgeon

 

[DAB1]

Use the best rate that you can get in the market if you were to invest your money in a CD for example.

 

[swaco]

One thing that you have to remember.....school vs. the real world analysis. Thats why you get paid to bucks, that sometimes means you being able to do the research for the results that you want.

 

If this is a personal question, the i you need is the interest rate you are paying on your most expensive credit card, or the rate you expect to make on your best investment.