Basics of Engineering Economy

Description

The Basics of Engineering Economy is designed to assist students in understanding and using the fundamental concepts and methods of economic evaluation to materially enhance rational data-centered decision-making in all these dimensions. This text covers the basic techniques and applications of engineering economy for all disciplines in the engineering profession.  The third edition concentrates on fundamental techniques and their applications, the efficient use of spreadsheets, and a rich coverage of personal financial situations in which engineering economy techniques can be applied easily and rapidly. The text presents the topics in condensed formats when compared to the larger text Engineering Economy. Table of Contents and Preface Cover Page Format for Spreadsheet Functions on Excel© Title Page Copyright Information Dedication Brief Contents Contents Preface Features of the Text: New and Retained Uses of This Text Acknowledgments Connect Chapter 1: Foundations of Engineering Economy Chapter 1 Introduction 1.1 What is Engineering Economy? 1.2 Performing an Engineering Economy Study 1.2.1 Alternatives 1.2.2 Cash Flows 1.2.3 Alternative Selection 1.2.4 Evaluation Criteria 1.2.5 Intangible Factors 1.2.6 Time Value of Money 1.3 Rates and the Time Value of Money 1.3.1 Interest Rate and Rate of Return 1.3.2 Minimum Attractive Rate of Return (MARR) 1.3.3 Weighted Average Cost of Capital (WACC) and the MARR 1.4 Equivalence 1.5 Simple and Compound Interest 1.6 Inflation and Purchasing Power of Money: An Introduction 1.7 Terminology and Symbols 1.8 Cash Flows: Their Estimation and Diagramming 1.9 Introduction to Spreadsheet and Calculator Functions 1.10 Ethics and Economic Decisions Summary Problems Additional Problems and FE Exam Review Questions Chapter 2: Factors: How Time and Interest Affect Money Chapter 2 Introduction 2.1 Single-Payment Formulas (F/P and P/F) 2.2 Uniform-Series Formulas (P/A, A/P, A/F, F/A) 2.3 Gradient Formulas 2.4 Calculations for Cash Flows that are Shifted 2.5 More Examples Using Spreadsheets and Calculators Summary Problems Additional Problems and FE Exam Review Questions Chapter 3: Nominal and Effective Interest Rates Chapter 3 Introduction 3.1 Nominal and Effective Interest Rate Statements 3.2 Effective Interest Rate Formulation 3.3 Reconciling Compounding Periods and Payment Periods 3.4 Equivalence Calculations Involving Only Single-Amount Factors 3.5 Equivalence Calculations Involving Series with PP ≥ CP 3.6 Equivalence Calculations Involving Series with PP < CP 3.7 Using Spreadsheets for Effective Interest Rate Computations 3.8 Understanding Personal Finance Debt and Investments Summary Problems Additional Problems and FE Exam Review Questions Chapter 4: Present Worth Analysis Chapter 4 Introduction 4.1 Formulating Alternatives 4.2 Present Worth Analysis of Equal-Life Alternatives 4.2.1 Mutually Exclusive Alternatives 4.2.2 Evaluation of a Bond Purchase 4.3 Present Worth Analysis of Different-Life Alternatives 4.3.1 Study Period 4.3.2 Least Common Multiple 4.3.3 Future Worth 4.3.4 Life-Cycle Cost 4.4 Capitalized Cost Analysis 4.5 Evaluation of Independent Projects: An Introduction 4.6 Additional Examples Using Spreadsheets for PW Analysis Summary Problems Additional Problems and FE Exam Review Questions Chapter 5: Annual Worth Analysis Chapter 5 Introduction 5.1 AW Value and Capital Recovery Calculations 5.2 Evaluating Alternatives Based on Annual Worth 5.3 AW of a Long-Life or Infinite-Life Investment 5.4 Additional Spreadsheet Examples for AW Analysis Summary Problems Additional Problems and FE Exam Review Questions Chapter 6: Rate of Return Analysis Chapter 6 Introduction 6.1 Interpretation of ROR Values 6.2 ROR Calculation 6.3 Cautions When Using the ROR Method 6.4 Understanding Incremental ROR Analysis 6.5 ROR Evaluation of Two or More Mutually Exclusive Alternatives 6.6 Multiple ROR Values 6.7 Techniques to Remove Multiple ROR Values 6.7.1 MIRR—Modified ROR Method 6.7.2 ROIC—Return on Invested Capital Method 6.8 More Spreadsheet and Calculator Examples to Determine ROR Values Summary Problems Additional Problems and FE Exam Review Questions Chapter 7: Benefit/Cost Analysis and Public Sector Projects Chapter 7 Introduction 7.1 Public Sector Projects: Description and Ethics 7.1.1 Public Sector Project Description 7.1.2 Ethics Considerations 7.2 Benefit/Cost Analysis of A Single Project 7.3 Profitability Index for Project Evaluation 7.4 Incremental B/C Evaluation of Two or More Alternatives 7.5 Using Spreadsheets for B/C Analysis Summary Problems Additional Problems and FE Exam Review Questions Chapter 8: Breakeven, Payback, Sensitivity, and Risk Analysis Chapter 8 Introduction 8.1 Basics of a Replacement Study 8.2 Breakeven Analysis between Two Alternatives 8.3 Payback Period Analysis 8.4 Sensitivity Analysis for Variation in Estimates 8.5 Sensitivity Analysis of Multiple Parameters for Multiple Alternatives 8.6 Using Spreadsheets for Sensitivity or Breakeven Analysis 8.7 Fundamentals of Risk in Economic Evaluations 8.8 Alternative Evaluation with Risk Considered Summary Problems Additional Problems and FE Exam Review Questions Chapter 9: Replacement and Retention Decisions Chapter 9 Introduction 9.1 Basics of a Replacement Study 9.2 Economic Service Life 9.3 Performing a Replacement Study 9.3.1 No Study Period Specified 9.3.2 Study Period Specified 9.4 Defender Replacement Value 9.5 Using Spreadsheets for ESL and Replacement Studies Summary Problems Additional Problems and FE Exam Review Questions Chapter 10: Effects of Inflation Chapter 10 Introduction 10.1 Understanding the Impact of Inflation (and Deflation) 10.2 PW Calculations Adjusted for Inflation 10.3 FW Calculations Adjusted for Inflation 10.4 AW Calculations adjusted for Inflation 10.5 Another Spreadsheet Example to Adjust for Inflation Summary Problems Additional Problems and FE Exam Review Questions Chapter 11: Cost Estimation and Allocation Chapter 11 Introduction 11.1 How Cost Estimates Are Made Costs to Estimate Cost Estimation Approach Precision and Accuracy of the Estimates Cost Estimation Techniques 11.2 Unit Method 11.3 Cost Indexes 11.4 Cost-Estimating Relationships: Cost-Capacity Equations 11.5 Cost-Estimating Relationships: Factor Method 11.6 Cost-Estimating Relationships: Learning Curve 11.7 Indirect Cost Estimation and Allocation 11.7.1 Indirect Cost Rates and Allocation 11.7.2 Activity-Based Cost Allocation Summary Problems Additional Problems and FE Exam Review Questions Chapter 12: Depreciation Methods Chapter 12 Introduction 12.1 Depreciation Terminology 12.2 Straight Line (SL) Depreciation 12.3 Declining Balance Depreciation 12.4 Modified Accelerated Cost Recovery System (MACRS) 12.5 Two More Depreciation Methods 12.6 Switching Between Classical Methods; Relation to MACRS Rates 12.7 Using Spreadsheets for Depreciation Computations 12.8 Depletion Methods Summary Problems Additional Problems and FE Exam Review Questions Chapter 13: After-Tax Economic Analysis Chapter 13 Introduction 13.1 Fundamentals of Income Taxes: Corporate and Individual 13.1.1 Terminology and Relations 13.1.2 Federal Corporate Income Tax Rates 13.1.3 Federal Income Tax Rates for Individuals 13.2 Before-Tax and After-Tax Alternative Evaluation 13.3 How Depreciation Can Affect an After-Tax Study 13.4 After-Tax Replacement Study 13.5 Capital, the Cost of Capital, and Taxes 13.6 Using a Spreadsheet for Expanded After-Tax Evaluation 13.7 After-Tax Value-Added Analysis Summary Problems Additional Problems and FE Exam Review Questions Chapter 14: Alternative Evaluation Including Noneconomic Attributes Chapter 14 Introduction 14.1 Overview and Key Attributes 14.2 Importance Score and Weight for Each Attribute 14.3 Value Rating for Each Alternative 14.4 Alternative Evaluation and Selection Summary Problems Additional Problems and FE Exam Review Questions Appendix A: Using Spreadsheets and Microsoft Excel© Appendix A Introduction A.1 Introduction to Using Excel© Enter a Formula or Use a Function Cell References in Formulas and Functions Print the Spreadsheet Create an (xy) Scatter Chart A.2 Organization (Layout) of the Spreadsheet A.3 Excel Functions Useful in Engineering Economy (alphabetical order) DB (Declining Balance) DDB (Double Declining Balance) EFFECT (Effective Interest Rate) FV (Future Value) IF (IF Logical Function) IRR (Internal Rate of Return) MIRR (Modified Internal Rate of Return) NOMINAL (Nominal Interest Rate) NPER (Number of Periods) NPV (Net Present Value) PMT (Payments) PV (Present Value) RAND and RANDBETWEEN (Random Numbers) RATE (Interest Rate) SLN (Straight Line Depreciation) VDB (Variable Declining Balance) VDB (for MACRS Depreciation) A.4 Goal Seek—A Spreadsheet Tool for Breakeven and Sensitivity Analyses A.5 Error Messages Appendix B: Accounting Reports and Business Ratios Appendix B Introduction B.1 The Balance Sheet B.2 Income Statement and Cost of Goods Sold Statement B.3 Business Ratios Appendix C: Glossary of Terms and Symbols Appendix C Introduction Reference Materials Reference Materials Textbooks Publications (with Website address) Interest Factor Tables Interest Factor Tables Index Index Accessibility Content: Text Alternatives for Images The Numerical Progressions are Marked 1 to 14 Text Alternative (FM) Digital Courseware Text Alternative (FM) Figure 1.1 Text Alternative (Chapter 1) Figure 1.3 Text Alternative (Chapter 1) Figure 1.4 Text Alternative (Chapter 1) Figure 2.1 Text Alternative (Chapter 2) Figure 2.5 Text Alternative (Chapter 2) Figure 2.7 Text Alternative (Chapter 2) Figure 2.10 Text Alternative (Chapter 2) Figure 2.15 Text Alternative (Chapter 2) Figure 2.16 Text Alternative (Chapter 2) Figure 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