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Making Economic Decisions | |

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A Sea of Problems | |

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Simple Problems | |

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Intermediate Problems | |

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Complex Problems | |

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The Role of Engineering Economic Analysis | |

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Examples of Engineering Economic Analysis | |

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The Decision-Making Process | |

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Rational Decision Making | |

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Engineering Decision Making for Current Costs | |

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Summary | |

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Problems | |

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Engineering Costs And Cost Estimating | |

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Engineering Costs | |

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Fixed, Variable, Marginal, and Average Costs | |

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Sunk Costs | |

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Opportunity Costs | |

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Recurring and Nonrecurring Costs | |

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Incremental Costs | |

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Cash Costs Versus Book Costs | |

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Life-Cycle Costs | |

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Cost Estimating | |

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Types of Estimate | |

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Difficulties in Estimation | |

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Estimating Models | |

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Per-Unit Model | |

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Segmenting Model | |

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Cost Indexes | |

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Power-Sizing Model | |

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Triangulation | |

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Improvement and the Learning Curve | |

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Estimating Benefits | |

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Cash Flow Diagrams | |

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Categories of Cash Flows | |

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Drawing a Cash Flow Diagram | |

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Drawing Cash Flow Diagrams with a Spreadsheet | |

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Summary | |

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Problems | |

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Interest And Equivalence | |

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A Prescription for Success | |

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Computing Cash Flows | |

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Time Value of Money | |

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Simple Interest | |

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Compound Interest | |

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Repaying a Debt | |

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Equivalence | |

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Difference in Repayment Plans | |

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Equivalence Is Dependent on Interest Rate | |

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Single Payment Compound Interest Formulas | |

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Nominal and Effective Interest | |

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Continuous Compounding | |

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Single Payment Interest Factors: Continuous Compounding | |

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Summary | |

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Problems | |

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Equivalence For Repeated Cash Flows | |

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Uniform Series Compound Interest Formulas | |

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Expanded Factors as Calculator Functions | |

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Cash Flows that Do Not Match Basic Patterns | |

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Economic Equivalence Viewed as a Moment Diagram | |

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Relationships Between Compound Interest Factors | |

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Single Payment | |

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Uniform Series | |

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Arithmetic Gradient | |

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Derivation of Arithmetic Gradient Factors | |

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Reality and the Assumed Uniformity of A, G, and g. | |

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Geometric Gradient | |

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Compounding Period and Payment Period Differ | |

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Spreadsheets for Economic Analysis | |

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Spreadsheet Annuity Functions for Cash Flow Tables | |

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Spreadsheet Block Functions | |

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Using Spreadsheets for Basic Graphing | |

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Summary | |

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Problems | |

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Present Worth Analysis | |

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Assumptions in Solving Economic Analysis Problems | |

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End-of-Year Convention | |

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Viewpoint of Economic Analysis Studies | |

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Sunk Costs | |

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Borrowed Money Viewpoint | |

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Effect of Inflation and Deflation | |

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Income Taxes | |

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Economic Criteria | |

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Applying Present Worth Techniques | |

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Useful Lives Equal the Analysis Period | |

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Useful Lives Different from the Analysis Period | |

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Infinite Analysis Period: Capitalized Cost | |

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Multiple Alternatives | |

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Bond Pricing | |

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Spreadsheets and Present Worth | |

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Summary | |

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Problems | |

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Annual Cash Flow Analysis | |

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Lowest Prices on the Net! Buy Now! | |

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Annual Cash Flow Calculations | |

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Resolving a Present Cost to an Annual Cost | |

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Treatment of Salvage Value | |

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Annual Cash Flow Analysis | |

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Analysis Period | |

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Analysis Period Equal to Alternative Lives | |

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Analysis Period a Common Multiple of Alternative Lives | |

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Analysis Period for a Continuing Requirement | |

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Infinite Analysis Period: Capitalized Cost | |

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Multiple Alternatives | |

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Using Spreadsheets to Analyze Loans | |

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Building an Amortization Schedule | |

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How Much to Interest? How Much to Principal? | |

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Finding the Balance Due on a Loan | |

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Pay off Debt Sooner by Increasing Payments | |

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Summary | |

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Problems | |

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Rate Of Return Analysis | |

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Bar Codes Give a Number; RFID Codes Tell A Story | |

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Internal Rate of Return | |

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Calculating Rate of Return | |

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Plot of NPW versus Interest Rate | |

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Interest Rates When There are Fees or Discounts | |

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Loans and Investments are Everywhere | |

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Incremental Analysis | |

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Present Worth Analysis | |

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Analysis Period | |

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Spreadsheets and Rate of Return Analysis | |

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Summary | |

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Problems | |

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Difficulties in Solving for an Interest Rate | |

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Why Multiple Solutions Can Occur | |

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Modified Internal Rate of Return (MIRR) | |

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Summary | |

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Problems | |

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Choosing the Best Alternative | |

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Tapping Into Geometry | |

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Incremental Analysis | |

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Graphical Solutions | |

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Elements in Comparing Mutually Exclusive Alternatives | |

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Doing a Set of Incremental Challenger-Defender Comparisons | |

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Choosing an Analysis Method | |

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Spreadsheets and Goal Seek | |

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Summary | |

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Problems | |

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Other Analysis Techniques | |

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Clean, Green, and Far Between | |

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Future Worth Analysis | |

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Benefit-Cost Ratio Analysis | |

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Variations on the Theme of Benefit-Cost Ratio | |

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Payback Period | |

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Sensitivity and Breakeven Analysis | |

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Graphing with Spreadsheets for Sensitivity and Breakeven Analysis | |

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Doing What-If Analysis with Spreadsheets | |

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Summary | |

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Problems | |

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Uncertainty In Future Events | |

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They Only Thought They Were Done | |

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Estimates and Their Use in Economic Analysis | |

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A Range of Estimates | |

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Probability | |

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Joint Probability Distributions | |

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Expected Value | |

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Economic Decision Trees | |

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Risk | |

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Risk Versus Return | |

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Simulation | |

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Real Options | |

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Summary | |

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Problems | |

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Depreciation | |

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Depreciation and Competitiveness | |

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Basic Aspects of Depreciation | |

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Deterioration and Obsolescence | |

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Depreciation and Expenses | |

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Types of Property | |

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Depreciation Calculation Fundamentals | |

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Historical Depreciation Methods | |

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Straight-Line Depreciation | |

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Sum-of-Years'-Digits Depreciation | |

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Declining Balance Depreciation | |

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Modified Accelerated Cost Recovery System (MACRS) | |

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Cost Basis and Placed-in-Service Date | |

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Property Class and Recovery Period | |

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Percentage Tables | |

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Where MACRS Percentage Rates (rt ) Come From | |

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MACRS Method Examples | |

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Comparing MACRS and Historical Methods | |

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Depreciation and Asset Disposal | |

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Unit-of-Production Depreciation | |

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Depletion | |

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Cost Depletion | |

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Percentage Depletion | |

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Spreadsheets and Depreciation | |

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Using VDB for MACRS | |

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Summary | |

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Problems | |

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Income Taxes | |

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On With the Wind | |

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A Partner in the Business | |

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Calculation of Taxable Income | |

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Taxable Income of Individuals | |

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Classification of Business Expenditures | |

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Taxable Income of Business Firms | |

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Income Tax Rates | |

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Individual Tax Rates | |

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Corporate Tax Rates | |

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Combined Federal and State Income Taxes | |

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Selecting an Income Tax Rate for Economy Studies | |

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Economic Analysis Taking Income Taxes into Account | |

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Capital Gains and Losses for Nondepreciated Assets | |

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Investment Tax Credit | |

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Estimating the After-Tax Rate of Return | |

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After-Tax Cash Flows and Spreadsheets | |

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Summary | |

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Problems | |

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Replacement Analysis | |

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The Replacement Problem | |

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Replacement Analysis Decision Map | |

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Minimum Cost Life of a New Asset --- the Challenger | |

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Do We Have Marginal Cost Data For the Defender? | |

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Are These Marginal Costs Increasing? | |

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Replacement Analysis Technique 1: Defender Marginal Costs Can Be Computed and Are Increasing | |

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Replacement Repeatability Assumptions | |

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Replacement Analysis Technique 2: Defender Marginal Costs Can Be Computed and Are Not Increasing | |

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Replacement Analysis Technique 3: When Defender Marginal Cost Data Are Not Available | |

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Complications in Replacement Analysis | |

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Defining Defender and Challenger First Costs | |

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Repeatability Assumptions Not Acceptable | |

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A Closer Look at Future Challengers | |

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After-Tax Replacement Analysis | |

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Marginal Costs on an After-Tax Basis | |

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Minimum Cost Life Problems | |

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Spreadsheets and Replacement Analysis | |

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Summary | |

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Problems | |

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Inflation And Price Change | |

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The Athabasca Oil Sands | |

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Meaning and Effect of Inflation | |

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How Does Inflation Happen? | |

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Definitions for Considering Inflation in Engineering Economy | |

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Analysis in Constant Dollars Versus Then-Current Dollars | |

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Price Change with Indexes | |

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What Is a Price Index? | |

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Composite Versus Commodity Indexes | |

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How to Use Price Indexes in Engineering Economic Analysis | |

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Cash Flows That Inflate at Different Rates | |

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Different Inflation Rates per Period | |

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Inflation Effect on After-Tax Calculations | |

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Using Spreadsheets for Inflation Calculations | |

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Summary | |

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Problems | |

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Selection Of A Minimum Attractive Rate Of Return | |

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BP Goes to Russia | |

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Sources of Capital | |

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Money Generated from the Firm's Operation | |

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External Sources of Money | |

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Choice of Source of Funds | |

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Cost of Funds | |

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Cost of Borrowed Money | |

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Cost of Capital | |

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Inflation and the Cost of Borrowed Money | |

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Investment Opportunities | |

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Opportunity Cost | |

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Selecting a Minimum Attractive Rate of Return | |

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Adjusting MARR to Account for Risk and Uncertainty | |

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Representative Values of MARR Used in Industry | |

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Capital Budgeting or Selecting the Best Projects | |

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Spreadsheets, Cumulative Investments, and the Opportunity Cost of Capital | |

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Summary | |

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Problems | |

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Economic Analysis In The Public Sector | |

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From Waste to Power and Money | |

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Investment Objective | |

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Viewpoint for Analysis | |

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Selecting an Interest Rate | |

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No Time-Value-of-Money Concept | |

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Cost of Capital Concept | |

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Opportunity Cost Concept | |

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Recommended Concept | |

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The Benefit-Cost Ratio | |

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Incremental Benefit-Cost Analysis | |

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Elements of the Incremental Benefit-Cost Ratio Method | |

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Other Effects of Public Projects | |

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Project Financing | |

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Project Duration | |

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Quantifying and Valuing Benefits and Disbenefits | |

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Project Politics | |

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Summary | |

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Problems | |

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Accounting And Engineering Economy | |

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The Two Faces of ABB | |

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The Role of Accounting | |

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Accounting for Business Transactions | |

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The Balance Sheet | |

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Assets | |

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Liabilities | |

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Equity | |

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Financial Ratios Derived from Balance Sheet Data | |

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The Income Statement | |

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Financial Ratios Derived from Income Statement Data | |

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Linking the Balance Sheet, Income Statement, and Capital Transactions | |

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Traditional Cost Accounting | |

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Direct and Indirect Costs | |

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Indirect Cost Allocation | |

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Problems with Traditional Cost Accounting | |

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Other Problems to Watch For | |

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Summary | |

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Problems | |

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Introduction to Spreadsheets | |

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The Elements of a Spreadsheet | |

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Defining Variables in a Data Block | |

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Copy Command | |

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Time Value of Money (TVM) Calculators | |

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Notation for TVM Calculators | |

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Examples with TVM Calculators and Tabulated Factors | |

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Problems | |

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Fundamentals of Engineering (FE) Examination Problems | |

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References | |

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Index | |