Economic and Financial Analysis for Engineering and Project Management

by Ardalan; Abol

• ISBN13: 9781566768320
• ISBN10: 1566768322
• eBook ISBN(s): 9781040215128
• Edition: 1st
• Format: Hardcover
• Copyright: 1999-10-13
• Publisher: CRC Press

Summary

Economic and Financial Analysis for Engineering and Project Management is for engineers and others who must analyze the financial and economic ramifications of producing and sustaining capital projects. Unlike other books in the field, it offers straightforward and lucid explanations of all main formulas needed to carry out financial analyses. The math is kept simple and is fully explained, making the book accessible to non-technical personnel. Numerous sample problems are provided, and can be worked on standard spreadsheet programs, as well as using interest rate tables. The book shows how to link quantitative data to management decisions and to standard reporting forms and has been designed for practicing engineers and students alike.Economic and Financial Analysis for Engineering and Project Management is a "must have" for graduate students in engineering management departments; graduate and undergraduates taking courses in project management, engineering economics, and engineering finance. Practicing engineers will find this book THE handy reference for any project involving financial analyses.

Table of Contents

Preface	p. ix
Acknowledgment	p. xiii
Financial Analysis and Choice of Alternatives
Introduction	p. 3
Costs and Benefits	p. 4
Importance of Time (Time Value of Money)	p. 5
Interest Rate	p. 6
Continuous Compounding of Interest	p. 7
Effective Rate of Interest	p. 7
Nominal Interest Rate	p. 8
Equivalence	p. 9
Cash Flow Diagram	p. 10
Inclusion of Nonmonetary Costs and Benefits	p. 13
Importance of Cash Flow Diagram	p. 13
The Process of Decision Making	p. 15
Financial Analysis Methods	p. 16
Derivation of the Formulae	p. 16
Problems	p. 17
Present Worth	p. 19
Present Value (PV)	p. 19
Net Present Worth	p. 20
Present Value of Uniform Annual Series	p. 20
Present Value of Arithmetic Gradient Series	p. 25
Multiple Alternatives and Equalizing Lives	p. 28
Exclusivity	p. 29
Problems	p. 34
Future Worth	p. 39
Future Value (FV)	p. 39
Future Value of Uniform Annual Series	p. 40
Multiple Alternatives	p. 42
Problems	p. 43
Annual Worth	p. 45
Annual Worth and Equivalent Uniform Annual Worth	p. 45
Important Point	p. 48
EUAW of an Arithmetic Gradient	p. 49
Multiple Projects	p. 50
Problems	p. 51
Rate of Return	p. 55
Rate of Return	p. 55
Multiple Alternatives and Incremental Analysis	p. 57
Multiple Rates of Return	p. 63
Problems	p. 64
Benefit-Cost Ratio and Payback Methods	p. 67
Benefit-Cost Ratio	p. 67
Equalizing Lives and Incremental Analysis	p. 68
Payback	p. 71
Multiple Alternatives	p. 72
Problems	p. 73
Inflation	p. 75
Inflation and Purchasing Power	p. 75
Inflation and Interest Rate Combined	p. 76
Inflation Adjusted Discount Rate	p. 78
Deflation	p. 79
General Inflation Indices	p. 80
Problems	p. 81
Tax and Depreciation	p. 83
Effects of Income Tax	p. 83
Depreciation, Book Value, and Capital Gain	p. 85
Straight-Line Depreciation	p. 85
Double Declining Balance (DDB) Depreciation	p. 87
Modified Accelerated Cost Recovery System (MACRS) Depreciation	p. 89
Sum of Years Digit (SOYD) Depreciation	p. 90
Change of Depreciation Methods	p. 91
Amortization and Depletion	p. 91
Financial Analysis with Tax and Depreciation	p. 92
Problems	p. 96
General Comments on Financial Analysis and Problem Solving	p. 101
Applicability of Different Methods	p. 101
Analyzing Financial Structure of an Investment	p. 103
General Structure of Problems	p. 103
Extra Problems	p. 106
Lifetime Worth (LTW) Estimation and Calculation
Lifetime Worth: Background and Definitions	p. 115
Background	p. 115
Life	p. 117
System Life	p. 117
Physical Life	p. 118
Technological Life	p. 118
Economic Life	p. 118
Life of Interest and Planning Horizon	p. 119
Phases of the Lifetime	p. 119
Concept Formation	p. 120
Conceptual Design and Development	p. 121
Design, Engineering, Prototyping, and Test	p. 121
Manufacturing, Test, Packaging, and Delivery	p. 121
Installation, Operation, and Maintenance	p. 124
Removal, Salvage, or Resale	p. 124
Concurrent Engineering	p. 124
Problems	p. 125
Lifetime Estimation and Calculation	p. 127
The Cash Flow Diagram	p. 127
Work and Cost Breakdown Structure (WBS-CBS)	p. 129
Lifetime Worth Calculation	p. 130
Lifetime Cost Estimation	p. 135
Parametric Estimation	p. 136
Comparative Estimation	p. 138
Engineering Estimation	p. 139
Combination of the Estimating Methods	p. 140
Estimation Accuracy	p. 140
Universal Ratios	p. 141
Problems	p. 142
Ltw of Software System	p. 145
Introduction	p. 145
Software Development Process	p. 145
Requirements Analysis	p. 146
Preliminary Design	p. 146
Detailed Design	p. 147
Implementation	p. 147
System Test and Acceptance	p. 148
Software Estimation	p. 148
Retirement and Replacement
Retirement and Replacement: Introduction and Definitions	p. 155
Introduction	p. 155
Retirement	p. 155
Opportunity Cost	p. 157
Replacement	p. 158
Problems	p. 160
Replacement Decision Making	p. 161
Replacement Philosophy	p. 161
Economic Life and Continuous Replacement	p. 163
Computer Determination of the Economic Life	p. 171
Depreciation and Tax	p. 174
Replacement Process	p. 179
More About Replacement	p. 186
Prior Knowledge of Replacement Time	p. 186
Problems	p. 189
Proof of the Formulae	p. 195
Compound Interest Tables	p. 197
Index	p. 219
About the Author	p. 221
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