Engineering Economy

by Sullivan, William G.; Wicks, Elin M.; Luxhoj, James

• ISBN13: 9780130673381
• ISBN10: 0130673382
• Edition: 12th
• Format: Hardcover
• Copyright: 2003-01-01
• Publisher: PRENTICE HALL

Summary

New edition provides exciting insights and thought-provoking inquiries into the principles, concepts, and techniques of engineering economy. Previous edition c2000.

Table of Contents

Preface	xi
PART I Fundamentals of Engineering Economy	1	(148)
Introduction to Engineering Economy	2	(21)
Introduction	2	(2)
Origins of Engineering Economy	4	(1)
What Are the Principles of Engineering Economy?	4	(4)
Engineering Economy and the Design Process	8	(9)
Accounting and Engineering Economy Studies	17	(1)
Overview of the Book	18	(2)
Problems	20	(3)
Cost Concepts and Design Economics	23	(47)
Introduction	23	(1)
Cost Estimating and Cost Terminology	24	(13)
The General Economic Environment	37	(9)
Cost-Driven Design Optimization	46	(6)
Present-Economy Studies	52	(9)
Summary	61	(1)
References	61	(1)
Problems	62	(8)
Money-Time Relationships and Equivalence	70	(79)
Introduction	70	(1)
Why Consider Return to Capital?	71	(1)
The Origins of Interest	72	(1)
Simple Interest	72	(1)
Compound Interest	73	(1)
The Concept of Equivalence	74	(3)
Notation and Cash-Flow Diagrams and Tables	77	(4)
Interest Formulas Relating Present and Future Equivalent Values of Single Cash Flows	81	(5)
Interest Formulas Relating a Uniform Series (Annuity) to Its Present and Future Equivalent Values	86	(7)
Interest Formulas for Discrete Compounding and Discrete Cash Flows	93	(1)
Deferred Annuities (Uniform Series)	93	(3)
Equivalence Calculations Involving Multiple Interest Formulas	96	(4)
Interest Formulas Relating a Uniform Gradient of Cash Flows to Its Annual and Present Equivalents	100	(6)
Interest Formulas Relating a Geometric Sequence of Cash Flows to Its Present and Annual Equivalents	106	(4)
Interest Rates That Vary with Time	110	(1)
Nominal and Effective Interest Rates	111	(3)
Interest Problems with Compounding More Often than Once per Year	114	(2)
Interest Problems with Cash Flows less Often than Compounding Periods	116	(4)
Interest Formulas for Continuous Compounding and Discrete Cash Flows	120	(3)
Interest Formulas for Continuous Compounding and Continuous Cash Flows	123	(3)
Additional Solved Problems	126	(5)
Spreadsheet Applications	131	(1)
Summary	131	(1)
References	132	(1)
Problems	133	(16)
PART II Basic Topics in Engineering Economy	149	(334)
Applications of Money-Time Relationships	150	(47)
Introduction	150	(1)
Determining the Minimum Attractive Rate of Return	151	(3)
The Present worth Method	154	(6)
The Future-Worth Method	160	(1)
The Annual-Worth Method	160	(4)
The Internal-Rate-of-Return Method	164	(11)
The External Rate of Return Method	175	(2)
The Payback (Payout) Period Method	177	(1)
Investment Balance Diagrams	178	(3)
An Example of a Proposed Capital Investment to Improve Process Yield	181	(1)
Spreadsheet Applications	182	(2)
Summary	184	(1)
References	185	(1)
Problems	186	(11)
Appendix 4-A The Multiple Rate of Return Problem with the IRR Method	194	(3)
Comparing Alternatives	197	(56)
Introduction	197	(1)
Basic Concepts for Comparing Alternatives	198	(4)
The Study (Analysis) Period	202	(1)
Case 1: Useful Lives Are Equal to the Study Period	203	(16)
Case 2: Useful Lives Are Different Among the Alternatives	219	(10)
Comparison of Alternatives Using the Capitalized Worth Method	229	(2)
Defining Mutually Exclusive Investment Alternatives in Terms of Combinations of Projects	231	(6)
Spreadsheet Applications	237	(3)
Summary	240	(1)
References	241	(1)
Problems	241	(12)
Depreciation and Income Taxes	253	(60)
Introduction	254	(1)
Depreciation Concepts and Terminology	254	(3)
The Classical (Historical) Depreciation Methods	257	(6)
The Modified Accelerated Cost Recovery System	263	(8)
A Comprehensive Depreciation Example	271	(3)
Depletion	274	(3)
Introduction to Income Taxes	277	(3)
The Effective (Marginal) Corporate Income Tax Rate	280	(4)
Gain (Loss) on the Disposal of an Asset	284	(1)
General Procedure for Making After-Tax Economic Analyses	284	(5)
Illustration of Computations of ATCFs	289	(9)
Economic Value Added	298	(2)
The After-Tax Effect of Depletion Allowances	300	(2)
Spreadsheet Applications	302	(2)
Summary	304	(1)
References	304	(1)
Problems	305	(8)
Cost Estimation Techniques	313	(55)
Introduction	313	(1)
An Integrated Approach	314	(10)
Selected Estimating Techniques (Models)	324	(5)
Parametric Cost Estimating	329	(11)
Cost Estimation in the Design Process	340	(10)
Estimating Cash Flows for a Typical Small Project	350	(3)
Summary	353	(1)
References	354	(1)
Problems	354	(14)
Appendix 7-A EXCEL Spreadsheet for Figure 7-5	361	(2)
Appendix 7-B An Additional Example of Target Costing	363	(5)
Price Changes and Exchange Rates	368	(38)
Price Changes	368	(2)
Terminology and Basic Concepts	370	(11)
Differential Price Inflation or Deflation	381	(6)
Application Strategy	387	(1)
A Comprehensive Example	388	(3)
Foreign Exchange Rates and Purchasing Power Concepts	391	(5)
Spreadsheet Applications	396	(2)
Summary	398	(1)
References	399	(1)
Problems	399	(7)
Replacement Analysis	406	(41)
Introduction	406	(1)
Reasons for Replacement Analysis	407	(1)
Factors that Must Be Considered in Replacement Studies	408	(3)
Typical Replacement Problems	411	(3)
Determining the Economic Life of a New Asset (Challenger)	414	(2)
Determining the Economic Life of a Defender	416	(3)
Comparisons in Which the Defender's Useful Life Differs from That of the Challenger	419	(3)
Retirement without Replacement (Abandonment)	422	(2)
After-Tax Replacement Studies	424	(10)
A Comprehensive Example	434	(3)
Spreadsheet Applications	437	(1)
Summary	438	(1)
References	439	(1)
Problems	440	(7)
Dealing with Uncertainty	447	(36)
Introduction	447	(1)
What Are Risk, Uncertainty, and Sensitivity?	448	(1)
Sources of Uncertainty	449	(1)
Sensitivity Analysis	450	(15)
Analyzing a Proposed Business Venture	465	(4)
Risk-Adjusted Minimum Attractive Rates of Return	469	(1)
Reduction of Useful Life	470	(4)
Spreadsheet Applications	474	(1)
Summary	475	(1)
References	476	(1)
Problems	477	(6)
PART III Additional Topics in Engineering Economy	483	(158)
Evaluating Projects with the Benefit-Cost-Ratio Method	484	(35)
Introduction	484	(2)
Perspective and Terminology for Analyzing Public Projects	486	(1)
Self-Liquidating Projects	487	(1)
Multiple-Purpose Projects	487	(2)
Difficulties in Evaluating Public-Sector Projects	489	(2)
What Interest Rate Should Be Used for Public Projects?	491	(1)
The Benefit-Cost-Ratio Method	492	(7)
Evaluating Independent Projects by B~ Ratios	499	(1)
Comparison of Mutually Exclusive Projects by B-C Ratios	500	(7)
Criticisms and Shortcomings of the Benefit-Cost-Ratio Method	507	(2)
Spreadsheet Applications	509	(2)
Summary	511	(1)
References	511	(1)
Problems	511	(8)
Engineering Economy Studies in Investor-Owned Utilities	519	(21)
Background	519	(1)
General Characteristics of Investor-Owned Utilities	520	(2)
General Concepts of Utility Economy Studies	522	(1)
Methods of Engineering Economy for Investor-Owned Utility Projects	522	(1)
Development of the Revenue Requirement Method	523	(1)
Assumptions of the Revenue Requirement Method	524	(1)
Utility-Rate Regulation	525	(1)
Flow-Through and Normalized Accounting	526	(1)
Illustration of the Revenue Requirement Method: A Tabular Procedure	527	(3)
Immediate versus Deferred Investment	530	(3)
Revenue Requirement Analysis under Conditions of Inflation	533	(2)
Summary	535	(1)
References	536	(1)
Problems	536	(4)
Probabilistic Risk Analysis	540	(46)
Introduction	540	(1)
The Distribution of Random Variables	541	(4)
Evaluation of Projects with Discrete Random Variables	545	(8)
Evaluation of Projects with Continuous Random Variables	553	(5)
Evaluation of Uncertainty Using Monte Carlo Simulation	558	(3)
Performing Monte Carlo Simulation with a Computer	561	(6)
Decision Trees	567	(8)
Spreadsheet Applications	575	(1)
Summary	576	(2)
References	578	(1)
Problems	578	(8)
Capital Financing and Allocation	586	(32)
Introduction	586	(2)
Differences between Sources of Capital	588	(2)
Cost of Debt Capital	590	(4)
Cost of Equity Capital	594	(4)
Weighted Average Cost of Capital	598	(1)
Leasing as a Source of Capital	599	(4)
Capital Allocation	603	(7)
An Overview of a Typical Corporate Capital Budgeting Process	610	(4)
Summary	614	(1)
References	614	(1)
Problems	614	(4)
Dealing with Multiattributed Decisions	618	(23)
Introduction	618	(1)
Examples of Multiattributed Decisions	619	(1)
Choice of Attributes	620	(1)
Selection of a Measurement Scale	621	(1)
Dimensionality of the Problem	621	(1)
Noncompensatory Models	622	(5)
Compensatory Models	627	(7)
Summary	634	(1)
References	634	(1)
Problems	635	(6)
PART IV Appendixes	641	(67)
A Accounting and Its Relationship to Engineering Economy	642	(18)
B Abbreviations and Notation	660	(5)
C Interest and Annuity Tables for Discrete Compounding	665	(19)
D Interest and Annuity Tables for Continuous Compounding	684	(4)
E Standardized Normal Distribution Function	688	(3)
F Selected References	691	(4)
G Answers to Problems	695	(13)
Index	708