Measures of Merit for Ship Design

Abstract

My purpose in writing this paper is to explain the role of engineering economy in ship design and to discuss the relative virtues and shortcomings of the several measures of merit in current use. In particular, I want to compare the two criteria most popular with United States business managers today: net present value and discounted cash flow rate of return, or yield. I also want to make the point that, under some conditions, the required freight rate criterion may be preferable to either of those two. &&All valid criteria have the characteristic of flat laxity. Therefore, finding an exactly optimal design is not as important as establishing the range of designs that promise close to the maximum level of profitability. Applying the different criteria to a typical speed__optimization study demonstrates that, when properly used, each valid criterion will indicate a design that is within the reasonable range indicated by the others. &&The effects of taxes as well as bank loans are covered in some detail, with illustrative examples from a feasibility study. These demonstrate that taxes have great influence in weighing the economic merit of new technologies but that bank loans do not. In short, from the designer's point of view, economics are important, finances are not.