| |

| |

Foreword | |

| |

| |

Preface | |

| |

| |

| |

Fundamentals of Engineering Economy | |

| |

| |

| |

Introduction to Engineering Economy | |

| |

| |

| |

Introduction | |

| |

| |

| |

Origins of Engineering Economy | |

| |

| |

| |

What Are the Principles of Engineering Economy? | |

| |

| |

| |

Engineering Economy and the Design Process | |

| |

| |

| |

Accounting and Engineering Economy Studies | |

| |

| |

| |

Overview of the Book | |

| |

| |

| |

Summary | |

| |

| |

| |

Problems | |

| |

| |

| |

Cost Concepts and Design Economics | |

| |

| |

| |

Introduction | |

| |

| |

| |

Cost Estimating and Cost Terminology | |

| |

| |

| |

The General Economic Environment | |

| |

| |

| |

Cost-Driven Design Optimization | |

| |

| |

| |

Present Economy Studies | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Money-Time Relationships and Equivalence | |

| |

| |

| |

Introduction | |

| |

| |

| |

Why Consider Return to Capital? | |

| |

| |

| |

The Origins of Interest | |

| |

| |

| |

Simple Interest | |

| |

| |

| |

Compound Interest | |

| |

| |

| |

The Concept of Equivalence | |

| |

| |

| |

Notation and Cash Flow Diagrams/Tables | |

| |

| |

| |

Interest Formulas Relating Present and Future Equivalent Values of Single Cash Flows | |

| |

| |

| |

Interest Formulas Relating a Uniform Series (Annuity) to Its Present and Future Equivalent Values | |

| |

| |

| |

Interest Formulas for Discrete Compounding and Discrete Cash Flows | |

| |

| |

| |

Deferred Annuities (Uniform Series) | |

| |

| |

| |

Equivalence Calculations Involving Multiple Interest Formulas | |

| |

| |

| |

Interest Formulas Relating a Uniform Gradient of Cash Flows to Its Annual and Present Equivalents | |

| |

| |

| |

Interest Formulas Relating a Geometric Sequence of Cash Flows to Its Present and Annual Equivalents | |

| |

| |

| |

Interest Rates That Vary with Time | |

| |

| |

| |

Nominal and Effective Interest Rates | |

| |

| |

| |

Interest Problems with Compounding More Often Than Once per Year | |

| |

| |

| |

Interest Problems with Cash Flows Less Often Than Compounding Periods | |

| |

| |

| |

Interest Formulas for Continuous Compounding and Discrete Cash Flows | |

| |

| |

| |

Interest Formulas for Continuous Compounding and Continuous Cash Flows | |

| |

| |

| |

Additional Solved Problems | |

| |

| |

| |

Spreadsheet Applications | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Basic Topics in Engineering Economy | |

| |

| |

| |

Applications of Money-Time Relationships | |

| |

| |

| |

Introduction | |

| |

| |

| |

Determining the Minimum Attractive Rate of Return | |

| |

| |

| |

The Present Worth Method | |

| |

| |

| |

The Future Worth Method | |

| |

| |

| |

The Annual Worth Method | |

| |

| |

| |

The Internal Rate of Return Method | |

| |

| |

| |

The External Rate of Return Method | |

| |

| |

| |

The Payback (Payout) Period Method | |

| |

| |

| |

Investment Balance Diagrams | |

| |

| |

| |

An Example of a Proposed Capital Investment to Improve Process Yield | |

| |

| |

| |

Spreadsheet Applications | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

The Multiple Rate of Return Problem with the IRR Method | |

| |

| |

| |

Comparing Alternatives | |

| |

| |

| |

Introduction | |

| |

| |

| |

Basic Concepts for Comparing Alternatives | |

| |

| |

| |

The Study (Analysis) Period | |

| |

| |

| |

Case 1: Useful Lives Are Equal to the Study Period | |

| |

| |

| |

Case 2: Useful Lives Are Different Among the Alternatives | |

| |

| |

| |

Comparison of Alternatives Using the Capitalized Worth Method | |

| |

| |

| |

Defining Mutually Exclusive Investment Alternatives in Terms of Combinations of Projects | |

| |

| |

| |

Spreadsheet Applications | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Depreciation and Income Taxes | |

| |

| |

| |

Introduction | |

| |

| |

| |

Depreciation Concepts and Terminology | |

| |

| |

| |

The Classical (Historical) Depreciation Methods | |

| |

| |

| |

The Modified Accelerated Cost Recovery System | |

| |

| |

| |

A Comprehensive Depreciation Example | |

| |

| |

| |

Depletion | |

| |

| |

| |

Introduction to Income Taxes | |

| |

| |

| |

The Effective (Marginal) Corporate Income Tax Rate | |

| |

| |

| |

Gain (Loss) on the Disposal of an Asset | |

| |

| |

| |

General Procedure for Making After-Tax Economic Analyses | |

| |

| |

| |

Illustration of Computations of ATCFs | |

| |

| |

| |

Economic Value Added | |

| |

| |

| |

The After-Tax Effect of Depletion Allowances | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Cost Estimation Techniques | |

| |

| |

| |

Introduction | |

| |

| |

| |

An Integrated Approach | |

| |

| |

| |

Selected Estimating Techniques (Models) | |

| |

| |

| |

Parametric Cost Estimating | |

| |

| |

| |

Cost Estimation in the Design Process | |

| |

| |

| |

Estimating Cash Flows for a Typical Small Project | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

Appendix 7-A | |

| |

| |

| |

Price Changes and Exchange Rates | |

| |

| |

| |

Price Changes | |

| |

| |

| |

Terminology and Basic Concepts | |

| |

| |

| |

Differential Price Inflation or Deflation | |

| |

| |

| |

Application Strategy | |

| |

| |

| |

A Comprehensive Example | |

| |

| |

| |

Foreign Exchange Rates and Purchasing Power Concepts | |

| |

| |

| |

Spreadsheet Applications | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Replacement Analysis | |

| |

| |

| |

Introduction | |

| |

| |

| |

Reasons for Replacement Analysis | |

| |

| |

| |

Factors That Must Be Considered in Replacement Studies | |

| |

| |

| |

A Typical Replacement Problem | |

| |

| |

| |

Determining the Economic Life of a New Asset (Challenger) | |

| |

| |

| |

Determining the Economic Life of a Defender | |

| |

| |

| |

Comparisons in Which the Defender's Useful Life Differs from That of the Challenger | |

| |

| |

| |

Retirement without Replacement (Abandonment) | |

| |

| |

| |

A Comprehensive Example | |

| |

| |

| |

Spreadsheet Applications | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Dealing with Uncertainty | |

| |

| |

| |

Introduction | |

| |

| |

| |

What Are Risk, Uncertainty, and Sensitivity? | |

| |

| |

| |

Sources of Uncertainty | |

| |

| |

| |

Sensitivity Analysis | |

| |

| |

| |

Analyzing a Proposed Business Venture | |

| |

| |

| |

Risk-Adjusted Minimum Attractive Rates of Return | |

| |

| |

| |

Reduction of Useful Life | |

| |

| |

| |

Spreadsheet Applications | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Additional Topics in Engineering Economy | |

| |

| |

| |

Evaluating Projects with the Benefit/Cost Ratio Method | |

| |

| |

| |

Introduction | |

| |

| |

| |

Perspective and Terminology for Analyzing Public Projects | |

| |

| |

| |

Self-Liquidating Projects | |

| |

| |

| |

Multiple-Purpose Projects | |

| |

| |

| |

Difficulties in Evaluating Public Sector Projects | |

| |

| |

| |

What Interest Rate Should Be Used for Public Projects? | |

| |

| |

| |

The Benefit/Cost Ratio Method | |

| |

| |

| |

Evaluating Independent Projects by B/C Ratios | |

| |

| |

| |

Comparison of Mutually Exclusive Projects by B/C Ratios | |

| |

| |

| |

Criticisms and Shortcomings of the Benefit/Cost Ratio Method | |

| |

| |

| |

Spreadsheet Applications | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Engineering Economy Studies in Investor-Owned Utilities | |

| |

| |

| |

Background | |

| |

| |

| |

General Characteristics of Investor-Owned Utilities | |

| |

| |

| |

General Concepts of Utility Economy Studies | |

| |

| |

| |

Methods of Engineering Economy for Investor-Owned Utility Projects | |

| |

| |

| |

Development of the Revenue Requirement Method | |

| |

| |

| |

Assumptions of the Revenue Requirement Method | |

| |

| |

| |

Utility Rate Regulation | |

| |

| |

| |

Flow-Through and Normalized Accounting | |

| |

| |

| |

Illustration of the Revenue Requirement Method: A Tabular Procedure | |

| |

| |

| |

Immediate versus Deferred Investment | |

| |

| |

| |

Revenue Requirement Analysis under Conditions of Inflation | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Probabilistic Risk Analysis | |

| |

| |

| |

Introduction | |

| |

| |

| |

The Distribution of Random Variables | |

| |

| |

| |

Evaluation of Projects with Discrete Random Variables | |

| |

| |

| |

Evaluation of Projects with Continuous Random Variables | |

| |

| |

| |

Evaluation of Uncertainty Using Monte Carlo Simulation | |

| |

| |

| |

Performing Monte Carlo Simulation with a Computer | |

| |

| |

| |

Decision Trees | |

| |

| |

| |

Spreadsheet Applications | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Capital Financing and Allocation | |

| |

| |

| |

Introduction | |

| |

| |

| |

Differences between Sources of Capital | |

| |

| |

| |

Cost of Debt Capital | |

| |

| |

| |

Cost of Equity Capital | |

| |

| |

| |

Weighted Average Cost of Capital | |

| |

| |

| |

Leasing as a Source of Capital | |

| |

| |

| |

Capital Allocation | |

| |

| |

| |

An Overview of a Typical Corporate Capital Budgeting Process | |

| |

| |

| |

Summary | |

| |

| |

| |

References | |

| |

| |

| |

Problems | |

| |

| |

| |

Communicating Engineering Economy Study Results | |

| |

| |

| |

Introduction | |

| |

| |

| |

Top Managers' Roles and Responsibilities | |

| |

| |

| |

Management's Perspectives | |

| |

| |

| |

Communication Strategies | |

| |

| |

| |

Summary | |

| |

| |

| |

Appendixes | |

| |

| |

Appendix | |

| |

| |

| |

Accounting and Its Relationship to Engineering Economy | |

| |

| |

| |

Abbreviations and Notation | |

| |

| |

| |

Interest and Annuity Tables for Discrete Compounding | |

| |

| |

| |

Interest and Annuity Tables for Continuous Compounding | |

| |

| |

| |

Standardized Normal Distribution Function | |

| |

| |

| |

Selected References | |

| |

| |

| |

Answers to Selected Even-Numbered Problems | |

| |

| |

Index | |