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| Preface | |
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| Background and Tools 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 the Economic Environment | |
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| Introduction | |
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| 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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| Principles of Money-Time Relationships | |
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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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| Applications of 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 Reduce Costs | |
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| An Example of a Large Industrial Investment Opportunity | |
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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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| 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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| 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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| After-Tax Analyses That Include Specific Financing Arrangements | |
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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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| Estimating Cash Flows | |
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| Introduction | |
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| An Integrated Approach | |
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| Selected Estimating Techniques (Models) | |
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| Estimating Total Product Costs and Selling Price | |
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| Estimating Cash Flows for a Typical Small Project | |
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| Developing Cash Flows (A Case Study) | |
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| Summary | |
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| References | |
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| Problems | |
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| Inflation and Price Changes | |
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| General Price Inflation | |
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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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| 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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| Common Nonprobabilistic Methods for Dealing with Uncertainty | |
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| Breakeven Analysis | |
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| Sensitivity Analysis | |
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| Analyzing a Proposed Business Venture | |
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| Optimistic-Pessimistic Estimates | |
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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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| Special Topics in Engineering Economy | |
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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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| A Decision Roadmap for Replacement Analysis | |
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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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| Capital Financing and Allocation | |
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| Introduction | |
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| Capital Financing | |
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| Financing with Debt Capital | |
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| Financing with Equity Capital | |
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| Leasing as a Source of Capital | |
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| Capital Allocation | |
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| Allocating Capital Among Independent Projects | |
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| Linear Programming Formulations of Capital Allocation Problems | |
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| An Overview of Corporate Capital Allocation Policy and Procedures | |
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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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| 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 | |