Fundamentals of engineering economics /

Title:

Fundamentals of engineering economics /

Author:

Park, Chan S.

Published:

Upper Saddle River, N.J. : c2013.

Format:

Book

Institution:

Wentworth Institute of Technology

Contents:

Machine generated contents note: pt. 1 UNDERSTANDING MONEY AND ITS MANAGEMENT -- ch. 1 Engineering Economic Decisions -- 1.1.The Rational Decision-Making Process -- 1.1.1.How Do We Make Typical Personal Decisions? -- 1.1.2.How Do We Approach an Engineering Design Problem? -- 1.1.3.What Makes Economic Decisions Different from Other Design Decisions? -- 1.2.The Engineer's Role in Business -- 1.2.1.Making Capital-Expenditure Decisions -- 1.2.2.Large-Scale Engineering Economic Decisions -- 1.2.3.Impact of Engineering Projects on Financial Statements -- 1.3.Types of Strategic Engineering Economic Decisions -- 1.3.1.New Products or Product Expansion -- 1.3.2.Equipment and Process Selection -- 1.3.3.Cost Reduction -- 1.3.4.Equipment Replacement -- 1.3.5.Service or Quality Improvement -- 1.4.Fundamental Principles in Engineering Economics -- Summary -- Self-Test Questions -- Problems -- ch. 2 Time Value of Money -- 2.1.Interest: The Cost of Money -- 2.1.1.The Time Value of Money -- 2.1.2.Elements of Transactions Involving Interest -- 2.1.3.Methods of Calculating Interest -- 2.2.Economic Equivalence -- 2.2.1.Definition and Simple Calculations -- 2.2.2.Equivalence Calculations Require a Common Time Basis for Comparison -- 2.3.Interest Formulas for Single Cash Flows -- 2.3.1.Compound-Amount Factor -- 2.3.2.Present-Worth Factor -- 2.3.3.Solving for Time and Interest Rates -- 2.4.Uneven-Payment Series -- 2.5.Equal-Payment Series -- 2.5.1.Compound-Amount Factor: Find F, Given A, i, and N -- 2.5.2.Sinking-Fund Factor: Find A, Given F, i, and N -- 2.5.3.Capital-Recovery Factor (Annuity Factor): Find A, Given P, i, and N -- 2.5.4.Present-Worth Factor: Find P, Given A, i, and N -- 2.5.5.Present Value of Perpetuities -- 2.6.Dealing with Gradient Series -- 2.6.1.Handling Linear Gradient Series -- 2.6.2.Handling Geometric Gradient Series -- 2.7.More on Equivalence Calculations -- Summary -- Self-Test Questions -- Problems -- ch. 3 Understanding Money Management -- 3.1.Market Interest Rates -- 3.1.1.Nominal Interest Rates -- 3.1.2.Annual Effective Yields -- 3.2.Calculating Effective Interest Rates Based on Payment Periods -- 3.2.1.Discrete Compounding -- 3.2.2.Continuous Compounding -- 3.3.Equivalence Calculations with Effective Interest Rates -- 3.3.1.Compounding Period Equal to Payment Period -- 3.3.2.Compounding Occurs at a Different Rate than That at Which Payments are Made -- 3.4.Debt Management -- 3.4.1.Borrowing with Credit Cards -- 3.4.2.Commercial Loans -- Calculating Principal and Interest Payments -- 3.4.3.Comparing Different Financing Options -- Summary -- Self-Test Questions -- Problems -- ch. 4 Equivalence Calculations under Inflation -- 4.1.Measure of Inflation -- 4.1.1.Consumer Price Index -- 4.1.2.Producer Price Index -- 4.1.3.Average Inflation Rate -- 4.1.4.General Inflation Rate (f) versus Specific Inflation (fj) -- 4.2.Actual versus Constant Dollars -- 4.2.1.Conversion from Constant to Actual Dollars -- 4.2.2.Conversion from Actual to Constant Dollars -- 4.3.Equivalence Calculations under Inflation -- 4.3.1.Market and Inflation-Free Interest Rates -- 4.3.2.Constant-Dollar Analysis -- 4.3.3.Actual-Dollar Analysis -- 4.3.4.Mixed-Dollar Analysis -- Summary -- Self-Test Questions -- Problems -- pt. 2 EVALUATING BUSINESS AND ENGINEERING ASSETS -- ch. 5 Present-Worth Analysis -- 5.1.Loan versus Project Cash Flows -- 5.2.Initial Project Screening Methods -- 5.2.1.Benefits and Flaws of Payback Screening -- 5.2.2.Discounted-Payback Period -- 5.3.Present-Worth Analysis -- 5.3.1.Net-Present-Worth Criterion -- 5.3.2.Guidelines for Selecting a MARR -- 5.3.3.Meaning of Net Present Worth -- 5.3.4.Net Future Worth and Project Balance Diagram -- 5.3.5.Capitalized-Equivalent Method -- 5.4.Methods to Compare Mutually Exclusive Alternatives -- 5.4.1.Doing Nothing Is a Decision Option -- 5.4.2.Service Projects versus Revenue Projects -- 5.4.3.Analysis Period Equals Project Lives -- 5.4.4.Analysis Period Differs from Project Lives -- Summary -- Self-Test Questions -- Problems -- ch. 6 Annual-Equivalence Analysis -- 6.1.Annual-Equivalent Worth Criterion -- 6.1.1.Benefits of AE Analysis -- 6.1.2.Capital (Ownership) Costs versus Operating Costs -- 6.2.Applying Annual-Worth Analysis -- 6.2.1.Unit-Profit or Unit-Cost Calculation -- 6.2.2.Make-or-Buy Decision -- 6.3.Comparing Mutually Exclusive Projects -- 6.3.1.Analysis Period Equals Project Lives -- 6.3.2.Analysis Period Differs from Project Lives -- Summary -- Self-Test Questions -- Problems -- ch. 7 Rate-of-Return Analysis -- 7.1.Rate of Return -- 7.1.1.Return on Investment -- 7.1.2.Return on Invested Capital -- 7.2.Methods for Finding Rate of Return -- 7.2.1.Simple versus Nonsimple Investments -- 7.2.2.Computational Methods -- 7.3.Internal-Rate-of-Return Criterion -- 7.3.1.Relationship to the PW Analysis -- 7.3.2.Decision Rule for Simple Investments -- 7.3.3.Decision Rule for Nonsimple Investments -- 7.4.Incremental Analysis for Comparing Mutually Exclusive Alternatives -- 7.4.1.Flaws in Project Ranking by IRR -- 7.4.2.Incremental-Investment Analysis -- 7.4.3.Handling Unequal Service Lives -- Summary -- Self-Test Questions -- Problems -- ch. 7A Resolution of Multiple Rates of Return -- 7A-1.Net-Investment Test -- 7A-2.The Need for an External Interest Rate -- 7A-3.Calculation of Return on Invested Capital for Mixed Investments -- ch. 8 Benefit-Cost Analysis -- 8.1.Evaluation of Public Projects -- 8.1.1.Valuation of Benefits and Costs -- 8.1.2.Users' Benefits -- 8.1.3.Sponsor's Costs -- 8.1.4.Social Discount Rate -- 8.2.Benefit-Cost Analysis -- 8.2.1.Definition of Benefit-Cost Ratio -- 8.2.2.Incremental B/C-Ratio Analysis -- 8.3.Profitability Index -- 8.3.1.Definition of Profitability Index -- 8.3.2.Incremental PI Ratio for Mutually Exclusive Alternatives -- 8.4.Highway Benefit-Cost Analysis -- 8.4.1.Define the Base Case and the Proposed Alternatives -- 8.4.2.Highway User Benefits -- 8.4.3.Sponsors' Costs -- 8.4.4.Illustrating Case Example -- Summary -- Self-Test Questions -- Problems -- pt. 3 DEVELOPMENT OF PROJECT CASH FLOWS -- ch. 9 Accounting for Depreciation and Income Taxes -- 9.1.Accounting Depreciation -- 9.1.1.Depreciable Property -- 9.1.2.Cost Basis -- 9.1.3.Useful Life and Salvage Value -- 9.1.4.Depreciation Methods: Book and Tax Depreciation -- 9.2.Book Depreciation Methods -- 9.2.1.Straight-Line Method -- 9.2.2.Declining-Balance Method -- 9.2.3.Units-of-Production Method -- 9.3.Tax Depreciation Methods -- 9.3.1.MACRS Recovery Periods -- 9.3.2.MACRS Depreciation: Personal Property -- 9.3.3.MACRS Depreciation: Real Property -- 9.4.Corporate Taxes -- 9.4.1.How to Determine "Accounting Profit" -- 9.4.2.U.S. Corporate Income Tax Rates -- 9.4.3.Gain Taxes on Asset Disposals -- Summary -- Self-Test Questions -- Problems -- ch. 10 Project Cash-Flow Analysis -- 10.1.Understanding Project Cost Elements -- 10.1.1.Classifying Costs for Manufacturing Environments -- 10.1.2.Classifying Costs for Financial Statements -- 10.1.3.Classifying Costs for Predicting Cost Behavior -- 10.2.Why Do We Need to Use Cash Flows in Economic Analysis? -- 10.3.Income-Tax Rate to Be Used in Project Evaluation -- 10.4.Incremental Cash Flows from Undertaking a Project -- 10.4.1.Operating Activities -- 10.4.2.Investing Activities -- 10.4.3.Financing Activities -- 10.5.Developing Project Cash Flow Statements -- 10.5.1.When Projects Require Only Operating and Investing Activities -- 10.5.2.When Projects Are Financed with Borrowed Funds -- 10.6.Effects of Inflation on Project Cash Flows -- 10.6.1.Depreciation Allowance under Inflation -- 10.6.2.Handling Multiple Inflation Rates -- Summary -- Self-Test Questions -- Problems -- ch. 11 Handling Project Uncertainty -- 11.1.Origins of Project Risk -- 11.2.Methods of Describing Project Risk -- 11.2.1.Sensitivity Analysis -- 11.2.2.Sensitivity Analysis for Mutually Exclusive Alternatives -- 11.2.3.Break-Even Analysis -- 11.2.4.Scenario Analysis -- 11.3.Probabilistic Cash Flow Analysis -- 11.3.1.Including Risk in Investment Evaluation -- 11.3.2.Aggregating Risk over Time -- 11.3.3.Estimating Risky Cash Flows -- 11.4.Considering the Project Risk by Discount Rate -- 11.4.1.Determining the Company Cost of Capital -- 11.4.2.Project Cost of Capital: Risk-Adjusted Discount Rate Approach -- Summary -- Self-Test Questions -- Problems -- pt. 4 SPECIAL TOPICS IN ENGINEERING ECONOMICS -- ch. 12 Replacement Decisions -- 12.1.Replacement-Analysis Fundamentals -- 12.1.1.Basic Concepts and Terminology -- 12.1.2.Approaches for Comparing Defender and Challenger -- 12.2.Economic Service Life -- 12.3.Replacement Analysis When the Required Service Period Is Long -- 12.3.1.Required Assumptions and Decision Frameworks -- 12.3.2.Handling Unequal Service Life Problems in Replacement Analysis -- 12.3.3.Replacement Strategies under the Infinite Planning Horizon -- 12.4.Replacement Analysis with Tax Considerations -- Summary -- Self-Test Questions -- Problems -- ch. 13 Understanding Financial Statements -- 13.1.Accounting: The Basis of Decision Making -- 13.2.Financial Status for Businesses -- 13.2.1.The Balance Sheet -- 13.2.2.The Income Statement -- 13.2.3.The Cash-Flow Statement -- 13.3.Using Ratios to Make Business Decisions -- 13.3.1.Debt Management Analysis -- 13.3.2.Liquidity Analysis -- 13.3.3.Asset Management Analysis -- 13.3.4.Profitability Analysis -- 13.3.5.Market-Value Analysis -- 13.3.6.Limitations of Financial Ratios in Business Decisions -- 13.3.7.Where We Get the Most Up-to-Date Financial Information -- 13.4.Principle of Investing in Financial Assets -- 13.4.1.Trade-Off between Risk and Reward -- 13.4.2.Broader Diversification Reduces Risk -- 13.4.3.Broader Diversification Increases Expected Return -- Summary -- Self-Test Questions -- Problems.

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