Engineering Economy

by Thuesen, Gerald J.; Fabrycky, W.J.

• ISBN13: 9780130281289
• ISBN10: 013028128X
• Edition: 9th
• Format: Paperback
• Copyright: 2000-05-30
• Publisher: Pearson

Summary

This book emphasizes the concepts and techniques of analysis that prove useful in evaluating the economic feasibility of engineering systems, projects, and services for decision purposes. It also familiarizes the engineer with operations and operational feasibility necessary to considerations of the design process.Chapter topics cover economic and cost concepts; interest formula; calculations of economic equivalence; equivalence involving inflation; bases for comparison and decision-making among alternatives; evaluating production operations and replacement alternatives; accounting; income taxes in economic analysis; decisions under risk and uncertainty and involving multiple criteria; and estimating economic elements.For a basic understanding of mathematical modeling in complex operational systems, essential to a growing number of engineers today.

Table of Contents

Preface	xiii
PART I INTRODUCTION TO ENGINEERING ECONOMY	1	(34)
Engineering and Engineering Economy
Engineering and Science	2	(1)
The Bi-Environmental Nature of Engineering	3	(2)
Physical and Economic Efficiency	5	(1)
The Engineering Process	6	(4)
Engineering for Economic Competitiveness	10	(1)
Engineering Economy and the Engineer	11	(4)
Key Points	13	(1)
Questions	13	(2)
Some Economic and Cost Concepts
Concepts of Value and Utility	15	(1)
Consumer and Producer Goods	16	(2)
Economic Aspects of Exchange	18	(3)
Classifications of Cost	21	(4)
Life-Cycle Cost	25	(3)
Interest and Interest Rate	28	(2)
The Time Value of Money	30	(1)
The Earning Power of Money	31	(1)
The Purchasing Power of Money	32	(3)
Key Points	33	(1)
Questions	33	(2)
PART II INTEREST FORMULAS AND EQUIVALENCE	35	(116)
Interest Formulas
Simple and Compound Interest	36	(2)
Describing Cash Flows Over Time	38	(2)
Interest Formulas (Discrete Compounding, Discrete Payments)	40	(13)
Interest-Formula Relationships	53	(2)
Compounding Frequency Considerations	55	(4)
Interest Formulas (Continuous Compounding, Discrete Payments)	59	(4)
Summary of Interest Formulas	63	(9)
Problems	65	(7)
Calculations of Economic Equivalence
The Meaning of Equivalence	72	(2)
Equivalence Calculations Involving a Single Factor	74	(7)
Equivalence Calculations Involving Cash Flows	81	(4)
Principles of Equivalence	85	(4)
Equivalence Calculations with More Frequent Compounding	89	(4)
Equivalence Calculations Involving Bonds	93	(4)
Equivalence Calculations Involving Loans	97	(4)
Equivalence Calculations Involving Working Capital	101	(14)
Key Points	102	(1)
Problems	103	(12)
Equivalence Involving Inflation
Measures of Inflation and Deflation	115	(2)
The Inflation Rate	117	(6)
Considering the Effects of Inflation	123	(5)
Analyzing Inflation in Investments	128	(23)
Key Points	139	(1)
Problems	140	(11)
PART III ECONOMIC ANALYSIS OF ALTERNATIVES	151	(236)
Bases for Comparison of Alternatives
Present Worth	152	(2)
Annual Equivalent	154	(2)
Future Worth	156	(1)
Internal Rate of Return	157	(9)
Payback Period	166	(4)
Capitalized Equivalent Amount	170	(1)
Capital Recovery with Return	171	(2)
Project Balance	173	(17)
Key Points	179	(1)
Problems	180	(10)
Decision Making Among Alternatives
Types of Investment Proposals	190	(2)
Forming Mutually Exclusive Alternatives	192	(5)
Elements of Decision Criteria	197	(5)
Present Worth on Incremental Investment	202	(3)
IRR on Incremental Investment	205	(4)
Comparisons Based on Total Investment	209	(6)
Comparing Alternatives with Unequal Lives	215	(29)
Key Points	225	(1)
Problems	225	(19)
Evaluating Production Operations
Characteristics of Production Operations	244	(4)
Break-Even Analysis	248	(13)
Operation and Production Decisions	261	(10)
Economic Operation of Equipment	271	(5)
Models for Procurement Operations	276	(21)
Key Points	283	(1)
Problems	284	(13)
Evaluating Replacement Alternatives
The General Nature of Replacement Analysis	297	(2)
Describing Replacement Alternatives	299	(5)
Replacement Analysis for Unequal Lives	304	(3)
The Economic Life of an Asset	307	(4)
Replacement Assumptions and Decisions	311	(12)
Retirement or Abandonment Decisions	323	(1)
Examples of Replacement Problems	324	(24)
Key Points	330	(1)
Problems	331	(17)
Evaluating Public Activities
General Welfare Aim of Government	348	(2)
The Nature of Public Activities	350	(2)
Financing Public Activities	352	(3)
Public Activities and Engineering Economy	355	(1)
Benefit-Cost Analysis	355	(12)
Identifying Benefits, Disbenefits, and Costs	367	(3)
Cost-Effectiveness Analysis	370	(17)
Key Points	374	(1)
Questions and Problems	374	(13)
PART IV ACCOUNTING, DEPRECIATION, AND INCOME TAXES	387	(80)
Accounting and Depreciation Accounting
General Accounting	388	(3)
Cost Accounting	391	(6)
Depreciation	397	(2)
Accounting for the Depreciation of Capital Assets	399	(2)
Basic Depreciation Methods	401	(5)
Modified Accelerated Cost Recovery System (MACRS)	406	(5)
Units-of-Production Depreciation	411	(1)
Depletion	412	(8)
Key Points	414	(1)
Questions and Problems	414	(6)
Income Taxes in Economic Analysis
Relation of Income Taxes to Profit	420	(1)
Federal Income Tax for Corporations	421	(4)
Effective Income-Tax Rates	425	(1)
Interest and Income Taxes	426	(2)
Depreciation and Income Taxes	428	(5)
Gain or Loss on Disposition of Depreciable Assets	433	(1)
Tax Credits	434	(1)
Depletion and Income Taxes	434	(2)
Calculating After-Tax Cash Flows	436	(4)
Evaluation of Financing Methods Using After-Tax Cash Flows	440	(7)
Capital Gains in After-Tax Cash Flows	447	(2)
Inflation and its Effects on After-Tax Flows	449	(1)
After-Tax Analysis of Replacements	450	(17)
Key Points	455	(1)
Problems	456	(11)
PART V ESTIMATES, RISK, AND UNCERTAINTY	467	(152)
Estimating Economic Elements
The Elements to Be Estimated	468	(4)
Cost Estimating Methods	472	(3)
Adjustment of Cost Data	475	(8)
Cost-Estimating Relationships	483	(7)
Estimating and Allocating Indirect Costs	490	(6)
Accounting Data in Estimating	496	(2)
Judgment in Estimating	498	(4)
Key Points	499	(1)
Questions and Problems	500	(2)
Estimates and Decision Making
An Example Decision Based upon Estimates	502	(2)
Allowances for Uncertainty in Estimates	504	(2)
Considering a Range of Estimates	506	(2)
Sensitivity Analysis	508	(13)
Key Points	518	(1)
Questions and Problems	518	(3)
Decisions Under Risk and Uncertainty
Criteria for Decisions Under Risk	521	(4)
Expected-Value Decision Making	525	(3)
Expectation Variance Decision Making	528	(5)
Monte Carlo Analysis	533	(3)
Decision Trees in Decision Making	536	(10)
Decisions Under Uncertainty	546	(19)
Key Points	552	(1)
Problems	552	(13)
Decisions Involving Multiple Criteria
Multiple Criteria Considerations	565	(2)
Direct Ranking Methods	567	(2)
Systematic Elimination Methods	569	(3)
Weighting Methods of Evaluation	572	(2)
Decision Evaluation Display	574	(2)
Decision Evaluation Display Examples	576	(4)
Summary: Making the Decision	580	(7)
Key Points	582	(1)
Questions and Problems	583	(4)
Appendices
Appendix A Interest Factors for Discrete Compounding	587	(30)
Appendix B Effective Interest Rates Corresponding to Nominal Rate r	617	(2)
Selected References	619	(4)
Index	623