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.

 

[imay]

I would love to answer your question. What is it that you are avaluating or making the economic analysis. Can you be a little bit more especific?? the interest value varies accordinng to the options you have. Can you tell me more about what is it that you arer doing? Maybe I will be able to help you...

-YM, EIT

 

[Christine74]

Hi Imay!

Sorry, I don't have all of the details worked out yet but at least I can give you the gist. We have a very old piece of equipment (a boring mill) that we need to replace because it is not big enough for our needs. It isn't used all that often, so I'm not sure if it is worth the higher initial cost to purchase a CNC mill. I didn't know where to start in comparing CNC vs. conventional. Everything is different - the initial cost, maintainance costs, depreciation expenses, labor rates, etc. Without the interest rate being given, I didn't know where to begin.

 

[imay]

Hi Christine,

I apologize It took me this long to answer.
I would start by doing some research on different vendors and the different cost options. Pretty much you will need to find out who gives you the best interest rate (7%, 10% etc.) then draw your analisys from there. The "i" stand for the interest rates you will get from different vendors. Is like buying a car. Do the research to see where can you get the best interest rate for the loan, and then use that to develop your cost benefit analysis.

Let me know if it helped! imay75@yahoo.com

-YM, EIT

 

[janeku]

I would suggest to start your comparing with the time used for old equipment and the new one. You have to know that if youa re going to buy a CNC mill, it have to be used more often then the old one. Try a parallel comparation between a new one and the old one (time of usage, produced pcs, time for producion of 1 pcs, cost of labor force ), and also use additional 2-3 year planning for production.