| |
| |
| |
| Making Economic Decisions | |
| |
| |
| A Sea of Problems | |
| |
| |
| Simple Problems | |
| |
| |
| Intermediate Problems | |
| |
| |
| Complex Problems | |
| |
| |
| The Role of Engineering Economic Analysis | |
| |
| |
| Examples of Engineering Economic Analysis | |
| |
| |
| The Decision-Making Process | |
| |
| |
| Rational Decision Making | |
| |
| |
| Engineering Decision Making for Current Costs | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Engineering Costs And Cost Estimating | |
| |
| |
| Engineering Costs | |
| |
| |
| Fixed, Variable, Marginal, and Average Costs | |
| |
| |
| Sunk Costs | |
| |
| |
| Opportunity Costs | |
| |
| |
| Recurring and Nonrecurring Costs | |
| |
| |
| Incremental Costs | |
| |
| |
| Cash Costs Versus Book Costs | |
| |
| |
| Life-Cycle Costs | |
| |
| |
| Cost Estimating | |
| |
| |
| Types of Estimate | |
| |
| |
| Difficulties in Estimation | |
| |
| |
| Estimating Models | |
| |
| |
| Per-Unit Model | |
| |
| |
| Segmenting Model | |
| |
| |
| Cost Indexes | |
| |
| |
| Power-Sizing Model | |
| |
| |
| Triangulation | |
| |
| |
| Improvement and the Learning Curve | |
| |
| |
| Estimating Benefits | |
| |
| |
| Cash Flow Diagrams | |
| |
| |
| Categories of Cash Flows | |
| |
| |
| Drawing a Cash Flow Diagram | |
| |
| |
| Drawing Cash Flow Diagrams with a Spreadsheet | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Interest And Equivalence | |
| |
| |
| A Prescription for Success | |
| |
| |
| Computing Cash Flows | |
| |
| |
| Time Value of Money | |
| |
| |
| Simple Interest | |
| |
| |
| Compound Interest | |
| |
| |
| Repaying a Debt | |
| |
| |
| Equivalence | |
| |
| |
| Difference in Repayment Plans | |
| |
| |
| Equivalence Is Dependent on Interest Rate | |
| |
| |
| Single Payment Compound Interest Formulas | |
| |
| |
| Nominal and Effective Interest | |
| |
| |
| Continuous Compounding | |
| |
| |
| Single Payment Interest Factors: Continuous Compounding | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Equivalence For Repeated Cash Flows | |
| |
| |
| Uniform Series Compound Interest Formulas | |
| |
| |
| Expanded Factors as Calculator Functions | |
| |
| |
| Cash Flows that Do Not Match Basic Patterns | |
| |
| |
| Economic Equivalence Viewed as a Moment Diagram | |
| |
| |
| Relationships Between Compound Interest Factors | |
| |
| |
| Single Payment | |
| |
| |
| Uniform Series | |
| |
| |
| Arithmetic Gradient | |
| |
| |
| Derivation of Arithmetic Gradient Factors | |
| |
| |
| Reality and the Assumed Uniformity of A, G, and g. | |
| |
| |
| Geometric Gradient | |
| |
| |
| Compounding Period and Payment Period Differ | |
| |
| |
| Spreadsheets for Economic Analysis | |
| |
| |
| Spreadsheet Annuity Functions for Cash Flow Tables | |
| |
| |
| Spreadsheet Block Functions | |
| |
| |
| Using Spreadsheets for Basic Graphing | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Present Worth Analysis | |
| |
| |
| Assumptions in Solving Economic Analysis Problems | |
| |
| |
| End-of-Year Convention | |
| |
| |
| Viewpoint of Economic Analysis Studies | |
| |
| |
| Sunk Costs | |
| |
| |
| Borrowed Money Viewpoint | |
| |
| |
| Effect of Inflation and Deflation | |
| |
| |
| Income Taxes | |
| |
| |
| Economic Criteria | |
| |
| |
| Applying Present Worth Techniques | |
| |
| |
| Useful Lives Equal the Analysis Period | |
| |
| |
| Useful Lives Different from the Analysis Period | |
| |
| |
| Infinite Analysis Period: Capitalized Cost | |
| |
| |
| Multiple Alternatives | |
| |
| |
| Bond Pricing | |
| |
| |
| Spreadsheets and Present Worth | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Annual Cash Flow Analysis | |
| |
| |
| Lowest Prices on the Net! Buy Now! | |
| |
| |
| Annual Cash Flow Calculations | |
| |
| |
| Resolving a Present Cost to an Annual Cost | |
| |
| |
| Treatment of Salvage Value | |
| |
| |
| Annual Cash Flow Analysis | |
| |
| |
| Analysis Period | |
| |
| |
| Analysis Period Equal to Alternative Lives | |
| |
| |
| Analysis Period a Common Multiple of Alternative Lives | |
| |
| |
| Analysis Period for a Continuing Requirement | |
| |
| |
| Infinite Analysis Period: Capitalized Cost | |
| |
| |
| Multiple Alternatives | |
| |
| |
| Using Spreadsheets to Analyze Loans | |
| |
| |
| Building an Amortization Schedule | |
| |
| |
| How Much to Interest? How Much to Principal? | |
| |
| |
| Finding the Balance Due on a Loan | |
| |
| |
| Pay off Debt Sooner by Increasing Payments | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Rate Of Return Analysis | |
| |
| |
| Bar Codes Give a Number; RFID Codes Tell A Story | |
| |
| |
| Internal Rate of Return | |
| |
| |
| Calculating Rate of Return | |
| |
| |
| Plot of NPW versus Interest Rate | |
| |
| |
| Interest Rates When There are Fees or Discounts | |
| |
| |
| Loans and Investments are Everywhere | |
| |
| |
| Incremental Analysis | |
| |
| |
| Present Worth Analysis | |
| |
| |
| Analysis Period | |
| |
| |
| Spreadsheets and Rate of Return Analysis | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Difficulties in Solving for an Interest Rate | |
| |
| |
| Why Multiple Solutions Can Occur | |
| |
| |
| Modified Internal Rate of Return (MIRR) | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Choosing the Best Alternative | |
| |
| |
| Tapping Into Geometry | |
| |
| |
| Incremental Analysis | |
| |
| |
| Graphical Solutions | |
| |
| |
| Elements in Comparing Mutually Exclusive Alternatives | |
| |
| |
| Doing a Set of Incremental Challenger-Defender Comparisons | |
| |
| |
| Choosing an Analysis Method | |
| |
| |
| Spreadsheets and Goal Seek | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Other Analysis Techniques | |
| |
| |
| Clean, Green, and Far Between | |
| |
| |
| Future Worth Analysis | |
| |
| |
| Benefit-Cost Ratio Analysis | |
| |
| |
| Variations on the Theme of Benefit-Cost Ratio | |
| |
| |
| Payback Period | |
| |
| |
| Sensitivity and Breakeven Analysis | |
| |
| |
| Graphing with Spreadsheets for Sensitivity and Breakeven Analysis | |
| |
| |
| Doing What-If Analysis with Spreadsheets | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Uncertainty In Future Events | |
| |
| |
| They Only Thought They Were Done | |
| |
| |
| Estimates and Their Use in Economic Analysis | |
| |
| |
| A Range of Estimates | |
| |
| |
| Probability | |
| |
| |
| Joint Probability Distributions | |
| |
| |
| Expected Value | |
| |
| |
| Economic Decision Trees | |
| |
| |
| Risk | |
| |
| |
| Risk Versus Return | |
| |
| |
| Simulation | |
| |
| |
| Real Options | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Depreciation | |
| |
| |
| Depreciation and Competitiveness | |
| |
| |
| Basic Aspects of Depreciation | |
| |
| |
| Deterioration and Obsolescence | |
| |
| |
| Depreciation and Expenses | |
| |
| |
| Types of Property | |
| |
| |
| Depreciation Calculation Fundamentals | |
| |
| |
| Historical Depreciation Methods | |
| |
| |
| Straight-Line Depreciation | |
| |
| |
| Sum-of-Years'-Digits Depreciation | |
| |
| |
| Declining Balance Depreciation | |
| |
| |
| Modified Accelerated Cost Recovery System (MACRS) | |
| |
| |
| Cost Basis and Placed-in-Service Date | |
| |
| |
| Property Class and Recovery Period | |
| |
| |
| Percentage Tables | |
| |
| |
| Where MACRS Percentage Rates (rt ) Come From | |
| |
| |
| MACRS Method Examples | |
| |
| |
| Comparing MACRS and Historical Methods | |
| |
| |
| Depreciation and Asset Disposal | |
| |
| |
| Unit-of-Production Depreciation | |
| |
| |
| Depletion | |
| |
| |
| Cost Depletion | |
| |
| |
| Percentage Depletion | |
| |
| |
| Spreadsheets and Depreciation | |
| |
| |
| Using VDB for MACRS | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Income Taxes | |
| |
| |
| On With the Wind | |
| |
| |
| A Partner in the Business | |
| |
| |
| Calculation of Taxable Income | |
| |
| |
| Taxable Income of Individuals | |
| |
| |
| Classification of Business Expenditures | |
| |
| |
| Taxable Income of Business Firms | |
| |
| |
| Income Tax Rates | |
| |
| |
| Individual Tax Rates | |
| |
| |
| Corporate Tax Rates | |
| |
| |
| Combined Federal and State Income Taxes | |
| |
| |
| Selecting an Income Tax Rate for Economy Studies | |
| |
| |
| Economic Analysis Taking Income Taxes into Account | |
| |
| |
| Capital Gains and Losses for Nondepreciated Assets | |
| |
| |
| Investment Tax Credit | |
| |
| |
| Estimating the After-Tax Rate of Return | |
| |
| |
| After-Tax Cash Flows and Spreadsheets | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Replacement Analysis | |
| |
| |
| The Replacement Problem | |
| |
| |
| Replacement Analysis Decision Map | |
| |
| |
| Minimum Cost Life of a New Asset --- the Challenger | |
| |
| |
| Do We Have Marginal Cost Data For the Defender? | |
| |
| |
| Are These Marginal Costs Increasing? | |
| |
| |
| Replacement Analysis Technique 1: Defender Marginal Costs Can Be Computed and Are Increasing | |
| |
| |
| Replacement Repeatability Assumptions | |
| |
| |
| Replacement Analysis Technique 2: Defender Marginal Costs Can Be Computed and Are Not Increasing | |
| |
| |
| Replacement Analysis Technique 3: When Defender Marginal Cost Data Are Not Available | |
| |
| |
| Complications in Replacement Analysis | |
| |
| |
| Defining Defender and Challenger First Costs | |
| |
| |
| Repeatability Assumptions Not Acceptable | |
| |
| |
| A Closer Look at Future Challengers | |
| |
| |
| After-Tax Replacement Analysis | |
| |
| |
| Marginal Costs on an After-Tax Basis | |
| |
| |
| Minimum Cost Life Problems | |
| |
| |
| Spreadsheets and Replacement Analysis | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Inflation And Price Change | |
| |
| |
| The Athabasca Oil Sands | |
| |
| |
| Meaning and Effect of Inflation | |
| |
| |
| How Does Inflation Happen? | |
| |
| |
| Definitions for Considering Inflation in Engineering Economy | |
| |
| |
| Analysis in Constant Dollars Versus Then-Current Dollars | |
| |
| |
| Price Change with Indexes | |
| |
| |
| What Is a Price Index? | |
| |
| |
| Composite Versus Commodity Indexes | |
| |
| |
| How to Use Price Indexes in Engineering Economic Analysis | |
| |
| |
| Cash Flows That Inflate at Different Rates | |
| |
| |
| Different Inflation Rates per Period | |
| |
| |
| Inflation Effect on After-Tax Calculations | |
| |
| |
| Using Spreadsheets for Inflation Calculations | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Selection Of A Minimum Attractive Rate Of Return | |
| |
| |
| BP Goes to Russia | |
| |
| |
| Sources of Capital | |
| |
| |
| Money Generated from the Firm's Operation | |
| |
| |
| External Sources of Money | |
| |
| |
| Choice of Source of Funds | |
| |
| |
| Cost of Funds | |
| |
| |
| Cost of Borrowed Money | |
| |
| |
| Cost of Capital | |
| |
| |
| Inflation and the Cost of Borrowed Money | |
| |
| |
| Investment Opportunities | |
| |
| |
| Opportunity Cost | |
| |
| |
| Selecting a Minimum Attractive Rate of Return | |
| |
| |
| Adjusting MARR to Account for Risk and Uncertainty | |
| |
| |
| Representative Values of MARR Used in Industry | |
| |
| |
| Capital Budgeting or Selecting the Best Projects | |
| |
| |
| Spreadsheets, Cumulative Investments, and the Opportunity Cost of Capital | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Economic Analysis In The Public Sector | |
| |
| |
| From Waste to Power and Money | |
| |
| |
| Investment Objective | |
| |
| |
| Viewpoint for Analysis | |
| |
| |
| Selecting an Interest Rate | |
| |
| |
| No Time-Value-of-Money Concept | |
| |
| |
| Cost of Capital Concept | |
| |
| |
| Opportunity Cost Concept | |
| |
| |
| Recommended Concept | |
| |
| |
| The Benefit-Cost Ratio | |
| |
| |
| Incremental Benefit-Cost Analysis | |
| |
| |
| Elements of the Incremental Benefit-Cost Ratio Method | |
| |
| |
| Other Effects of Public Projects | |
| |
| |
| Project Financing | |
| |
| |
| Project Duration | |
| |
| |
| Quantifying and Valuing Benefits and Disbenefits | |
| |
| |
| Project Politics | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Accounting And Engineering Economy | |
| |
| |
| The Two Faces of ABB | |
| |
| |
| The Role of Accounting | |
| |
| |
| Accounting for Business Transactions | |
| |
| |
| The Balance Sheet | |
| |
| |
| Assets | |
| |
| |
| Liabilities | |
| |
| |
| Equity | |
| |
| |
| Financial Ratios Derived from Balance Sheet Data | |
| |
| |
| The Income Statement | |
| |
| |
| Financial Ratios Derived from Income Statement Data | |
| |
| |
| Linking the Balance Sheet, Income Statement, and Capital Transactions | |
| |
| |
| Traditional Cost Accounting | |
| |
| |
| Direct and Indirect Costs | |
| |
| |
| Indirect Cost Allocation | |
| |
| |
| Problems with Traditional Cost Accounting | |
| |
| |
| Other Problems to Watch For | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| |
| Introduction to Spreadsheets | |
| |
| |
| The Elements of a Spreadsheet | |
| |
| |
| Defining Variables in a Data Block | |
| |
| |
| Copy Command | |
| |
| |
| |
| Time Value of Money (TVM) Calculators | |
| |
| |
| Notation for TVM Calculators | |
| |
| |
| Examples with TVM Calculators and Tabulated Factors | |
| |
| |
| Problems | |
| |
| |
| |
| Fundamentals of Engineering (FE) Examination Problems | |
| |
| |
| References | |
| |
| |
| Index | |