The role of engineering economics in the evaluation of investment projects by the Bank of Amazon-Brazil

Abstract

One of the engineering economics objectives is to do economic analysis of investment decisions. It has quite extensive applications since the investment may come from private companies or government entities. The analysis or evaluation of projects involves a set of techniques that establish feasibility parameters. These parameters are expressed by PBP (Payback Period - number of years to recover the investment), IRR (internal rate of return) or NPV (Net Present Value). Thus, it has an important role on investment analysis or to buy a capital good, checking all technically feasible investment alternatives. This research is based on a case study, namely a project of extension of a micro enterprise, whose data was collected on Bank of Amazon. The Bank of Amazon is an agent for the application of policies and programs of the Federal Government in the Amazon region, as well as its feasibility and the potential to carry out the project. Based on these facts, it was studied the role of engineering economics in the evaluation of investment projects by the Bank of Amazon, located in the northern region of Brazil. It was concluded that the Bank relies on the economic feasibility and engineering economics to analyses the submitted projects, having as a reference a IRR parameter between 4% and 12% and a PBP of 4 to 12 years in the investment projects less or equal to R$ 400,000.00. Some opportunities and suggestions to extend and improve investment analysis procedures and tools are discussed at the end of this paper.