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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 | |