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Foreword | |
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Preface | |
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Fundamentals of Engineering Economy | |
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Introduction to Engineering Economy | |
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Introduction | |
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Origins of Engineering Economy | |
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What Are the Principles of Engineering Economy? | |
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Engineering Economy and the Design Process | |
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Accounting and Engineering Economy Studies | |
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Overview of the Book | |
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Summary | |
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Problems | |
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Cost Concepts and Design Economics | |
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Introduction | |
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Cost Estimating and Cost Terminology | |
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The General Economic Environment | |
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Cost-Driven Design Optimization | |
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Present Economy Studies | |
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Summary | |
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References | |
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Problems | |
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Money-Time Relationships and Equivalence | |
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Introduction | |
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Why Consider Return to Capital? | |
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The Origins of Interest | |
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Simple Interest | |
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Compound Interest | |
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The Concept of Equivalence | |
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Notation and Cash Flow Diagrams/Tables | |
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Interest Formulas Relating Present and Future Equivalent Values of Single Cash Flows | |
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Interest Formulas Relating a Uniform Series (Annuity) to Its Present and Future Equivalent Values | |
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Interest Formulas for Discrete Compounding and Discrete Cash Flows | |
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Deferred Annuities (Uniform Series) | |
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Equivalence Calculations Involving Multiple Interest Formulas | |
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Interest Formulas Relating a Uniform Gradient of Cash Flows to Its Annual and Present Equivalents | |
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Interest Formulas Relating a Geometric Sequence of Cash Flows to Its Present and Annual Equivalents | |
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Interest Rates That Vary with Time | |
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Nominal and Effective Interest Rates | |
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Interest Problems with Compounding More Often Than Once per Year | |
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Interest Problems with Cash Flows Less Often Than Compounding Periods | |
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Interest Formulas for Continuous Compounding and Discrete Cash Flows | |
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Interest Formulas for Continuous Compounding and Continuous Cash Flows | |
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Additional Solved Problems | |
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Spreadsheet Applications | |
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Summary | |
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References | |
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Problems | |
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Basic Topics in Engineering Economy | |
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Applications of Money-Time Relationships | |
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Introduction | |
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Determining the Minimum Attractive Rate of Return | |
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The Present Worth Method | |
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The Future Worth Method | |
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The Annual Worth Method | |
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The Internal Rate of Return Method | |
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The External Rate of Return Method | |
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The Payback (Payout) Period Method | |
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Investment Balance Diagrams | |
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An Example of a Proposed Capital Investment to Improve Process Yield | |
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Spreadsheet Applications | |
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Summary | |
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References | |
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Problems | |
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The Multiple Rate of Return Problem with the IRR Method | |
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Comparing Alternatives | |
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Introduction | |
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Basic Concepts for Comparing Alternatives | |
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The Study (Analysis) Period | |
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Case 1: Useful Lives Are Equal to the Study Period | |
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Case 2: Useful Lives Are Different Among the Alternatives | |
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Comparison of Alternatives Using the Capitalized Worth Method | |
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Defining Mutually Exclusive Investment Alternatives in Terms of Combinations of Projects | |
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Spreadsheet Applications | |
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Summary | |
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References | |
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Problems | |
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Depreciation and Income Taxes | |
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Introduction | |
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Depreciation Concepts and Terminology | |
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The Classical (Historical) Depreciation Methods | |
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The Modified Accelerated Cost Recovery System | |
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A Comprehensive Depreciation Example | |
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Depletion | |
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Introduction to Income Taxes | |
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The Effective (Marginal) Corporate Income Tax Rate | |
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Gain (Loss) on the Disposal of an Asset | |
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General Procedure for Making After-Tax Economic Analyses | |
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Illustration of Computations of ATCFs | |
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Economic Value Added | |
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The After-Tax Effect of Depletion Allowances | |
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Summary | |
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References | |
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Problems | |
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Cost Estimation Techniques | |
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Introduction | |
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An Integrated Approach | |
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Selected Estimating Techniques (Models) | |
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Parametric Cost Estimating | |
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Cost Estimation in the Design Process | |
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Estimating Cash Flows for a Typical Small Project | |
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Summary | |
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References | |
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Problems | |
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Appendix 7-A | |
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Price Changes and Exchange Rates | |
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Price Changes | |
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Terminology and Basic Concepts | |
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Differential Price Inflation or Deflation | |
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Application Strategy | |
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A Comprehensive Example | |
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Foreign Exchange Rates and Purchasing Power Concepts | |
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Spreadsheet Applications | |
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Summary | |
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References | |
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Problems | |
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Replacement Analysis | |
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Introduction | |
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Reasons for Replacement Analysis | |
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Factors That Must Be Considered in Replacement Studies | |
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A Typical Replacement Problem | |
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Determining the Economic Life of a New Asset (Challenger) | |
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Determining the Economic Life of a Defender | |
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Comparisons in Which the Defender's Useful Life Differs from That of the Challenger | |
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Retirement without Replacement (Abandonment) | |
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A Comprehensive Example | |
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Spreadsheet Applications | |
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Summary | |
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References | |
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Problems | |
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Dealing with Uncertainty | |
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Introduction | |
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What Are Risk, Uncertainty, and Sensitivity? | |
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Sources of Uncertainty | |
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Sensitivity Analysis | |
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Analyzing a Proposed Business Venture | |
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Risk-Adjusted Minimum Attractive Rates of Return | |
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Reduction of Useful Life | |
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Spreadsheet Applications | |
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Summary | |
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References | |
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Problems | |
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Additional Topics in Engineering Economy | |
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Evaluating Projects with the Benefit/Cost Ratio Method | |
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Introduction | |
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Perspective and Terminology for Analyzing Public Projects | |
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Self-Liquidating Projects | |
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Multiple-Purpose Projects | |
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Difficulties in Evaluating Public Sector Projects | |
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What Interest Rate Should Be Used for Public Projects? | |
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The Benefit/Cost Ratio Method | |
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Evaluating Independent Projects by B/C Ratios | |
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Comparison of Mutually Exclusive Projects by B/C Ratios | |
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Criticisms and Shortcomings of the Benefit/Cost Ratio Method | |
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Spreadsheet Applications | |
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Summary | |
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References | |
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Problems | |
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Engineering Economy Studies in Investor-Owned Utilities | |
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Background | |
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General Characteristics of Investor-Owned Utilities | |
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General Concepts of Utility Economy Studies | |
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Methods of Engineering Economy for Investor-Owned Utility Projects | |
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Development of the Revenue Requirement Method | |
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Assumptions of the Revenue Requirement Method | |
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Utility Rate Regulation | |
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Flow-Through and Normalized Accounting | |
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Illustration of the Revenue Requirement Method: A Tabular Procedure | |
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Immediate versus Deferred Investment | |
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Revenue Requirement Analysis under Conditions of Inflation | |
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Summary | |
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References | |
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Problems | |
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Probabilistic Risk Analysis | |
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Introduction | |
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The Distribution of Random Variables | |
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Evaluation of Projects with Discrete Random Variables | |
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Evaluation of Projects with Continuous Random Variables | |
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Evaluation of Uncertainty Using Monte Carlo Simulation | |
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Performing Monte Carlo Simulation with a Computer | |
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Decision Trees | |
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Spreadsheet Applications | |
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Summary | |
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References | |
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Problems | |
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Capital Financing and Allocation | |
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Introduction | |
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Differences between Sources of Capital | |
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Cost of Debt Capital | |
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Cost of Equity Capital | |
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Weighted Average Cost of Capital | |
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Leasing as a Source of Capital | |
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Capital Allocation | |
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An Overview of a Typical Corporate Capital Budgeting Process | |
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Summary | |
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References | |
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Problems | |
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Communicating Engineering Economy Study Results | |
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Introduction | |
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Top Managers' Roles and Responsibilities | |
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Management's Perspectives | |
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Communication Strategies | |
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Summary | |
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Appendixes | |
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Appendix | |
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Accounting and Its Relationship to Engineering Economy | |
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Abbreviations and Notation | |
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Interest and Annuity Tables for Discrete Compounding | |
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Interest and Annuity Tables for Continuous Compounding | |
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Standardized Normal Distribution Function | |
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Selected References | |
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Answers to Selected Even-Numbered Problems | |
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Index | |