Food-Processing-Plant-Design-layout

Food Processing Plant Design & layout
12.1 Introduction
Module- 6. Food processing enterprise and engineering economics
Lesson 12. Engineering economics
Engineering economy is the study of quantitative techniques for the evaluation of
engineering alternatives based upon financial criteria.
In production systems engineering, economic choices are required when
1. phasing-in of new products and services, and phasing-out of existing products and
services,
2. making a choice between alternative production technologies,
3. choosing plant location and layout, and
4. when deciding about the questions of equipment replacement etc.
12.2 Important terms of engineering economy
1. Time Value of Money: Time value of money is defined as the time dependent value
of money stemming both from changes in the purchasing power of money (inflation
or deflation) and from the real earning potential of alternative investments over
time. The following are reasons why Rs.1000 today is “worth” more than Rs.1000
one year from today. 1. Inflation, 2. Risk, and 3. Cost of money
2. Inflation: It is the decrease in the purchasing power of a given sum of money with
time due to complex national and international economic factors.
3. Interest: It is the money paid for the use of borrowed money. A production concern
borrows money from individuals, commercial banks, insurance companies and
government, and pays interest on the borrowed money.
4. Interest Rate: It is the ratio of the amount of interest paid at the end of a period or
time, usually one year, to the sum of money borrowed at the beginning of that
period. The sum borrowed is called the Principal. The interest rate is usually
expressed as i percent per annum.
5. Compound Interest: If a sum of money is borrowed for more than one period of
time, then in compound interest, the amount of interest payable at the end of any
given period of time is calculated on the total amount payable at the beginning of
that period of time. In business, compound interest only is charged.
6. Rate of Return: If a production concern invests an amount of money in setting up
production facilities, then the ratio of the net profit earned by the company at the
end of a period of time to the sum invested is called the Rate of Return on
investment.
7. Attractive Rate of Return. This is the minimum rate of return which is used as a
criterion by which a concern evaluates alternative investment proposals. An
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