Start Building the Bull —- Wall Almost

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Start Building the Bull ---- Wall • Almost all engineering projects cost money to do. • The money that it costs to do the project is called capital • In order to get someone to give up the money now we have to offer to give him more money later • The extra money we have to antee up is called the “cost of capital”

We can’t call the extra money antee-up payments • So we think of another name • Most common name is Interest – You put your money in a savings account at the bank. Now its not in your pocket for you to use to buy a blizzard at Dairy Queen. Your gratification has been delayed. To make you happy that you have a piece of paper from the bank instead of a Dairy Queen Blizzard the bank has to promise you extra money (so you can buy more blizzards in the future).

Interest • Interest is paid on savings accounts etc. by banks • Corporations or Governments may want to borrow the use of your money for a while too. Instead of giving you a savings passbook or a CD with pretty gold edges the give you a note promising to pay you more in the future - its called a bond – the extra bucks they pay are also called interest

Another Fancy Word • Sometimes instead of getting an “I promise you more money in the future note”, we actually buy a part of the project or the company. – You get a special piece of paper called a “Stock Certificate” • If the project or company makes money you get a cut of the take

Now You’re a Breed Apart • Even though your still getting extra money for putting off your gratification now you own part of the project. • Your too cool for us to call the extra money interest (after all now you’re a “stock holder”) • The new word is “Dividend”

Now we have two words for extra money you get for delayed gratification • We need to invent a new word that describes both interest and dividends (and any other catchy name someone comes up with) • The word is “Rate of Return” - the rate of return tells you how much extra money you get for putting off gratification

Rate of Return • If I offered you $100 now or $100 when you graduate, but if you wait till you graduate I’ll give you an extra PENNY! – Would you wait till you graduated • Ok you greedy pig what would it take?

More Rate of Return • Most of the time when we get money for engineering projects we get it from investors who carefully consider how much extra “palm grease” we’re going to have to provide before they let go of the money • There is what we call a “cost of capital” • Our project must either make enough money to satisfy that cost of capital or no one will build it

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