Bibliographic record and links to related information available from the Library of Congress catalog.
Note: Contents data are machine generated based on pre-publication provided by the publisher. Contents may have variations from the printed book or be incomplete or contain other coding.
CONTENTS Preface xiii THIS IS HOW IT ALL STARTS Chapter 1 Foundations of Engineering Economy 4 1.1 Why Engineering Economy Is Important to Engineers (and Other Professionals) 6 1.2 Role of Engineering Economy in Decision Making 7 1.3 Performing an Engineering Economy Study 9 1.4 Interest Rate and Rate of Return 12 1.5 Equivalence 15 1.6 Simple and Compound Interest 17 1.7 Terminology and Symbols 23 1.8 Introduction to Solution by Computer 26 1.9 Minimum Attractive Rate of Return 28 1.10 Cash Flows: Their Estimation and Diagramming 30 1.11 Rule of 72: Estimating Doubling Time and Interest Rate 35 1.12 Spreadsheet Application-Simple and Compound Interest, and Changing Cash Flow Estimates 36 Additional Examples 39 Chapter Summary 41 Problems 42 FE Review Problems 45 Extended Exercise-Effects of Compound Interest 45 Case Study-Describing Alternatives for Producing Refrigerator Shells 46 Chapter 2 Factors: How Time and Interest Affect Money 48 2.1 Single-Payment Factors (FyP and PyF) 50 2.2 Uniform-Series Present Worth Factor and Capital RecoveryFactor (PyA and AyP) 56 2.3 Sinking Fund Factor and Uniform-Series Compound AmountFactor (AyF and FyA) 60 2.4 Interpolation in Interest Tables 63 2.5 Arithmetic Gradient Factors (PyG and AyG) 65 2.6 Geometric Gradient Series Factors 71 2.7 Determination of an Unknown Interest Rate 74 2.8 Determination of Unknown Number of Years 77 2.9 Spreadsheet Application-Basic Sensitivity Analysis 78 Additional Example 80 Chapter Summary 81 Problems 81 FE Review Problems 87 Case Study-What a Difference the Years and Compound Interest Can Make 88 Chapter 3 Combining Factors 90 3.1 Calculations for Uniform Series That Are Shifted 92 3.2 Calculations Involving Uniform-Series and Randomly Placed Single Amounts 96 3.3 Calculations for Shifted Gradients 101 3.4 Shifted Decreasing Arithmetic Gradients 106 3.5 Spreadsheet Application-Using Different Functions 108 Additional Example 112 Chapter Summary 113 Problems 113 FE Review Problems 119 Extended Exercise-Preserving Land for Public Use 120 Chapter 4 Nominal and Effective Interest Rates 122 4.1 Nominal and Effective Interest Rate Statements 124 4.2 Effective Annual Interest Rates 128 4.3 Effective Interest Rates for Any Time Period 134 4.4 Equivalence Relations: Comparing Payment Period and Compounding Period Lengths (PP versus CP) 136 4.5 Equivalence Relations: Single Amounts with PP $ CP 137 4.6 Equivalence Relations: Series with PP $ CP 140 4.7 Equivalence Relations: Single Amounts and Series with PP , CP 145 4.8 Effective Interest Rate for Continuous Compounding 147 4.9 Interest Rates That Vary over Time 149 Chapter Summary 151 Problems 152 FE Review Problems 155 Case Study-Financing a House 156 TOOLS FOR EVALUATING ALTERNATIVES Chapter 5 Present Worth Analysis 162 5.1 Formulating Mutually Exclusive Alternatives 164 5.2 Present Worth Analysis of Equal-Life Alternatives 166 5.3 Present Worth Analysis of Different-Life Alternatives 168 5.4 Future Worth Analysis 171 5.5 Capitalized Cost Calculation and Analysis 173 5.6 Payback Period Analysis 179 5.7 Life-Cycle Cost 184 5.8 Present Worth of Bonds 188 5.9 Spreadsheet Applications-PW Analysis and Payback Period 191 Chapter Summary 196 Problems 196 FE Review Problems 203 Extended Exercise-Evaluation of Social Security Retirement Estimates 204 Case Study-Payback Evaluation of Ultralow-Flush Toilet Program 205 Chapter 6 Annual Worth Analysis 208 6.1 Advantages and Uses of Annual Worth Analysis 210 6.2 Calculation of Capital Recovery and AW Values 212 6.3 Evaluating Alternatives by Annual Worth Analysis 215 6.4 AW of a Permanent Investment 220 Chapter Summary 223 Problems 224 FE Review Problems 227 Case Study-The Changing Scene of an Annual Worth Analysis 228 Chapter 7 Rate of Return Analysis: Single Alternative 230 7.1 Interpretation of a Rate of Return Value 232 7.2 Rate of Return Calculation Using a PW or AW Equation 234 7.3 Cautions When Using the ROR Method 240 7.4 Multiple Rate of Return Values 241 7.5 Composite Rate of Return: Removing Multiple i* Values 247 7.6 Rate of Return of a Bond Investment 253 Chapter Summary 255 Problems 256 FE Review Problems 261 Extended Exercise 1-The Cost of a Poor Credit Rating 262 Extended Exercise 2-When Is It Best to Sell a Business? 263 Case Study-Bob Learns About Multiple Rates of Return 264 Chapter 8 Rate of Return Analysis: Multiple Alternatives 266 8.1 Why Incremental Analysis is Necessary 268 8.2 Calculation of Incremental Cash Flows for ROR Analysis 269 8.3 Interpretation of Rate of Return on the Extra Investment 272 8.4 Rate of Return Evaluation Using PW: Incremental and Breakeven 273 8.5 Rate of Return Evaluation Using AW 281 8.6 Incremental ROR Analysis of Multiple, Mutually Exclusive Alternatives 282 8.7 Spreadsheet Application-PW, AW, and ROR Analyses All in One 287 Chapter Summary 290 Problems 290 FE Review Problems 296 Extended Exercise-Incremental ROR Analysis When Estimated Alternative Lives are Uncertain 297 Case Study 1-So Many Options. Can a New Engineering Graduate Help His Father? 298 Case Study 2-PW Analysis When Multiple Interest Rates Are Present 300 Chapter 9 Benefit/Cost Analysis and Public Sector Economics 302 9.1 Public Sector Projects 304 9.2 Benefit/Cost Analysis of a Single Project 308 9.3 Alternative Selection Using Incremental B/C Analysis 313 9.4 Incremental B/C Analysis of Multiple, Mutually Exclusive Alternatives 316 Chapter Summary 322 Problems 322 FE Review Problems 328 Extended Exercise-Costs to Provide Ladder Truck Service for Fire Protection 328 Case Study-Freeway Lighting 330 Chapter 10 Making Choices: The Method, MARR, and Multiple Attributes 332 10.1 Comparing Mutually Exclusive Alternatives by Different Evaluation Methods 334 10.2 MARR Relative to the Cost of Capital 337 10.3 Debt-Equity Mix and Weighted Average Cost of Capital 340 10.4 Determination of the Cost of Debt Capital 343 10.5 Determination of the Cost of Equity Capital and the MARR 345 10.6 Effect of Debt-Equity Mix on Investment Risk 348 10.7 Multiple Attribute Analysis: Identification and Importance of Each Attribute 350 10.8 Evaluation Measure for Multiple Attributes 355 Chapter Summary 357 Problems 358 Extended Exercise-Emphasizing the Right Things 365 Case Study-Which Way to Go-Debt or Equity Financing? 367 MAKING DECISIONS ON REAL-WORLD PROJECTS Chapter 11 Replacement and Retention Decisions 370 11.1 Basics of the Replacement Study 372 11.2 Economic Service Life 375 11.3 Performing a Replacement Study 381 11.4 Additional Considerations in a Replacement Study 387 11.5 Replacement Study over a Specified Study Period 388 Chapter Summary 394 Problems 394 FE Review Problems 399 Extended Exercise-Economic Service Life Under Varying Conditions 400 Case Study-Replacement Analysis for Quarry Equipment 401 Chapter 12 Selection from Independent Projects Under Budget Limitation 402 12.1 An Overview of Capital Rationing Among Projects 404 12.2 Capital Rationing Using PW Analysis of Equal-Life Projects 406 12.3 Capital Rationing Using PW Analysis of Unequal-Life Projects 408 12.4 Capital Budgeting Problem Formulation Using Linear Programming 412 Chapter Summary 416 Problems 417 Case Study-Lifelong Engineering Education in a Web Environment 420 Chapter 13 Breakeven Analysis 422 13.1 Breakeven Analysis for a Single Project 424 13.2 Breakeven Analysis Between Two Alternatives 431 13.3 Spreadsheet Application-Using Excel's SOLVER for Breakeven Analysis 435 Chapter Summary 438 Problems 439 Case Study-Water Treatment Plant Process Costs 444 ROUNDING OUT THE STUDY Chapter 14 Effects of Inflation 450 14.1 Understanding the Impact of Inflation 452 14.2 Present Worth Calculations Adjusted for Inflation 453 14.3 Future Worth Calculations Adjusted for Inflation 459 14.4 Capital Recovery Calculations Adjusted for Inflation 464 Chapter Summary 465 Problems 466 FE Review Problems 469 Extended Exercise-Fixed-Income Investments versus the Forces of Inflation 470 Chapter 15 Cost Estimation and Indirect Cost Allocation 472 15.1 Understanding How Cost Estimation Is Accomplished 474 15.2 Cost Indexes 477 15.3 Cost Estimating Relationships: Cost-Capacity Equations 481 15.4 Cost Estimating Relationships: Factor Method 482 15.5 Traditional Indirect Cost Rates and Allocation 485 15.6 Activity-Based Costing (ABC) for Indirect Costs 490 Chapter Summary 493 Problems 494 FE Review Problems 501 Case Study-Total Cost Estimates for Optimizing Coagulant Dosage 501 Case Study-Indirect Cost Comparison of Medical Equipment Sterilization Unit 504 Chapter 16 Depreciation Methods 506 16.1 Depreciation Terminology 508 16.2 Straight Line (SL) Depreciation 511 16.3 Declining Balance (DB) and Double Declining Balance (DDB) Depreciation 512 16.4 Modified Accelerated Cost Recovery System (MACRS) 517 16.5 Determining the MACRS Recovery Period 521 16.6 Depletion Methods 522 Chapter Summary 524 Problems 526 FE Review Problems 529 16A.1 Sum-of-Year Digits (SYD) Depreciation 530 16A.2 Switching Between Depreciation Methods 532 16A.3 Determination of MACRS Rates 537 Appendix Problems 540 Chapter 17 After-Tax Economic Analysis 542 17.1 Income Tax Terminology and Relations for Corporations (and Individuals) 544 17.2 Before-Tax and After-Tax Cash Flow 548 17.3 Effect on Taxes of Different Depreciation Methods and Recovery Periods 552 17.4 Depreciation Recapture and Capital Gains (Losses): for Corporations 555 17.5 After-Tax PW, AW, and ROR Evaluation 560 17.6 Spreadsheet Applications-After-Tax Incremental ROR Analysis 566 17.7 After-Tax Replacement Study 569 17.8 After-Tax Value-Added Analysis 573 Chapter Summary 577 Problems 578 Case Study-After-Tax Evaluation of Debt and Equity Financing 587 Chapter 18 Formalized Sensitivity Analysis and Expected Value Decisions 590 18.1 Determining Sensitivity to Parameter Variation 592 18.2 Formalized Sensitivity Analysis Using Three Estimates 599 18.3 Economic Variability and the Expected Value 602 18.4 Expected Value Computations for Alternatives 603 18.5 Staged Evaluation of Alternatives Using a Decision Tree 605 Chapter Summary 610 Problems 611 Extended Exercise-Looking at Alternatives from Different Angles 619 Case Study-Sensitivity Analysis of Public Sector Projects-Water Supply Plans 619 Chapter 19 More on Variation and Decision Making Under Risk 624 19.1 Interpretation of Certainty, Risk, and Uncertainty 626 19.2 Elements Important to Decision Making Under Risk 630 19.3 Random Samples 636 19.4 Expected Value and Standard Deviation 641 19.5 Monte Carlo Sampling and Simulation Analysis 647 Additional Examples 656 Chapter Summary 661 Problems 661 Extended Exercise-Using Simulation and the Excel RNG for Sensitivity Analysis 666 Appendix A Using Spreadsheets and Microsoft Excel c 667 A.1 Introduction to Using Excel 667 A.2 Organization (Layout) of the Spreadsheet 671 A.3 Excel Functions Important to Engineering Economy (alphabetical order) 673 A.4 SOLVER-An Excel Tool for Breakeven and "What If?" Analysis 682 A.5 List of Excel Financial Functions 683 A.6 Error Messages 685 Appendix B Basics of Accounting Reports and Business Ratios 686 B.1 The Balance Sheet 686 B.2 Income Statement and Cost of Goods Sold Statement 688 B.3 Business Ratios 689 Problems 693 Appendix C Final Answers to Selected End-of-Chapter Problems 695 Bibliography 700 Compound Interest Factor Tables 702 INDEX 731
Library of Congress Subject Headings for this publication:
Engineering economy.