2.3 The Cash Flow Diagram
DRAW THE DIAGRAM!
How many times have you heard your professors say this? How many times have you ignored this step in a problem solution and gotten nowhere?
In mechanics, we are taught to draw the free body diagram and identify forces. In the thermal sciences, we are taught to draw system boundaries and identify energy, flow and mass transfers. These diagrams are not meant for busy work. They are meant to help us understand the problem. Reading the problem is one thing. Analyzing and solving the problem is another. When you draw the 'diagram', you are thinking about the problem and all its nuances. As you solve the problem, you will undoubtedly refer back to the 'diagram' to help you write the proper equations and include the right sign convention. These 'diagrams' are integral in allowing you to be successful in solving a complex problem.
Engineering economic analysis is no different. The cash flow diagram is the first step in any successful engineering economic analysis. Drawing the cash flow diagram allows you to think about the problem before you even start analyzing it. As you solve the problem, you will refer back to this diagram as you decide on algebraic signs, compounding periods, etc.
The cash flow diagram is as important as the free body diagram and system boundaries! So heed your professor's words ... DRAW THE DIAGRAM!!! The few minutes it takes to draw the diagram will be a few minutes very well spent.