ECONOMIC ANALYSIS: CASH FLOW DIAGRAMS.

The costs and benefits of engineering projects occur over time and are summarized on a cash flow diagram (CFD). Specifically,a CFD illustrates the size, sign, and timing of individual cash flows. In this way the CFD is the basis for engineering economic analysis.

A cash flow diagram is created by first drawing a segmented time-based horizontal line, divided into appropriate time units. The time units on the CFD can be years, months, quarters, or any other consistent time unit. Then at each time at which a cash flow will occur, a vertical arrow is added-pointing down for costs and up for revenues or benefits.

These cash flows are drawn to relative scale.

The cash flows are assumed to occur at time 0 or at the end of each period. Consider

Figure 2-7, the CFD for a specific investment opportunity whose cash flows are described as follows:

FIGURE 2-7 An example cash flow diagram(CFD).

⇒ Drawing Cash Flow Diagrams with a Spreadsheet.

⇒ Drawing a Cash Flow Diagram.

⇒ Categories of Cash Flows.