Additional Information
Book Details
Abstract
For Engineering Economics courses, found in departments of Industrial, Civil, Mechanical, and Electrical Engineering.
From the author of the best-selling Contemporary Engineering Economics text, Fundamentals of Engineering Economics offers a concise, but in-depth coverage of all fundamental topics of Engineering Economics.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Cover | Cover | ||
| Contents | 11 | ||
| Preface | 5 | ||
| PART 1 UNDERSTANDING MONEY AND ITS MANAGEMENT | 19 | ||
| Chapter 1 Engineering Economic Decisions | 20 | ||
| 1.1 The Rational Decision-Making Process | 22 | ||
| 1.1.1 How Do We Make Typical Personal Decisions? | 22 | ||
| 1.1.2 How Do We Approach an Engineering Design Problem? | 25 | ||
| 1.1.3 What Makes Economic Decisions Different from Other Design Decisions? | 27 | ||
| 1.2 The Engineer’s Role in Business | 28 | ||
| 1.2.1 Making Capital-Expenditure Decisions | 28 | ||
| 1.2.2 Large-Scale Engineering Economic Decisions | 28 | ||
| 1.2.3 Impact of Engineering Projects on Financial Statements | 30 | ||
| 1.3 Types of Strategic Engineering Economic Decisions | 31 | ||
| 1.3.1 New Products or Product Expansion | 32 | ||
| 1.3.2 Equipment and Process Selection | 32 | ||
| 1.3.3 Cost Reduction | 33 | ||
| 1.3.4 Equipment Replacement | 34 | ||
| 1.3.5 Service or Quality Improvement | 34 | ||
| 1.4 Fundamental Principles in Engineering Economics | 35 | ||
| Summary | 36 | ||
| Self-Test Questions | 37 | ||
| Problems | 37 | ||
| Chapter 2 Time Value of Money | 38 | ||
| 2.1 Interest: The Cost of Money | 40 | ||
| 2.1.1 The Time Value of Money | 40 | ||
| 2.1.2 Elements of Transactions Involving Interest | 42 | ||
| 2.1.3 Methods of Calculating Interest | 44 | ||
| 2.2 Economic Equivalence | 46 | ||
| 2.2.1 Definition and Simple Calculations | 47 | ||
| 2.2.2 Equivalence Calculations Require a Common Time Basis for Comparison | 50 | ||
| 2.3 Interest Formulas for Single Cash Flows | 51 | ||
| 2.3.1 Compound-Amount Factor | 51 | ||
| 2.3.2 Present-Worth Factor | 53 | ||
| 2.3.3 Solving for Time and Interest Rates | 56 | ||
| 2.4 Uneven-Payment Series | 58 | ||
| 2.5 Equal-Payment Series | 60 | ||
| 2.5.1 Compound-Amount Factor: Find F, Given A, i, and N | 60 | ||
| 2.5.2 Sinking-Fund Factor: Find A, Given F, i, and N | 64 | ||
| 2.5.3 Capital-Recovery Factor (Annuity Factor): Find A, Given P, i, and N | 66 | ||
| 2.5.4 Present-Worth Factor: Find P, Given A, i, and N | 69 | ||
| 2.5.5 Present Value of Perpetuities | 74 | ||
| 2.6 Dealing with Gradient Series | 76 | ||
| 2.6.1 Handling Linear Gradient Series | 76 | ||
| 2.6.2 Handling Geometric Gradient Series | 82 | ||
| 2.7 More on Equivalence Calculations | 86 | ||
| Summary | 92 | ||
| Self-Test Questions | 93 | ||
| Problems | 97 | ||
| Chapter 3 Understanding Money Management | 112 | ||
| 3.1 Market Interest Rates | 114 | ||
| 3.1.1 Nominal Interest Rates | 114 | ||
| 3.1.2 Annual Effective Yields | 115 | ||
| 3.2 Calculating Effective Interest Rates Based on Payment Periods | 118 | ||
| 3.2.1 Discrete Compounding | 118 | ||
| 3.2.2 Continuous Compounding | 119 | ||
| 3.3 Equivalence Calculations with Effective Interest Rates | 121 | ||
| 3.3.1 Compounding Period Equal to Payment Period | 121 | ||
| 3.3.2 Compounding Occurs at a Different Rate than That at Which Payments Are Made | 124 | ||
| 3.4 Debt Management | 128 | ||
| 3.4.1 Borrowing with Credit Cards | 128 | ||
| 3.4.2 Commercial Loans—Calculating Principal and Interest Payments | 131 | ||
| 3.4.3 Comparing Different Financing Options | 134 | ||
| Summary | 139 | ||
| Self-Test Questions | 141 | ||
| Problems | 144 | ||
| Chapter 4 Equivalence Calculations under Inflation | 158 | ||
| 4.1 Measure of Inflation | 159 | ||
| 4.1.1 Consumer Price Index | 160 | ||
| 4.1.2 Producer Price Index | 161 | ||
| 4.1.3 Average Inflation Rate | 163 | ||
| 4.1.4 General Inflation Rate (f) versus Specific Inflation Rate (f[sub(j)]) | 164 | ||
| 4.2 Actual Versus Constant Dollars | 166 | ||
| 4.2.1 Conversion from Constant to Actual Dollars | 167 | ||
| 4.2.2 Conversion from Actual to Constant Dollars | 168 | ||
| 4.3 Equivalence Calculations under Inflation | 172 | ||
| 4.3.1 Market and Inflation-Free Interest Rates | 173 | ||
| 4.3.2 Constant-Dollar Analysis | 173 | ||
| 4.3.3 Actual-Dollar Analysis | 174 | ||
| 4.3.4 Mixed-Dollar Analysis | 178 | ||
| Summary | 181 | ||
| Self-Test Questions | 182 | ||
| Problems | 184 | ||
| PART 2 EVALUATING BUSINESS AND ENGINEERING ASSETS | 191 | ||
| Chapter 5 Present-Worth Analysis | 192 | ||
| 5.1 Loan versus Project Cash Flows | 194 | ||
| 5.2 Initial Project Screening Methods | 195 | ||
| 5.2.1 Benefits and Flaws of Payback Screening | 197 | ||
| 5.2.2 Discounted-Payback Period | 198 | ||
| 5.3 Present-Worth Analysis | 200 | ||
| 5.3.1 Net-Present-Worth Criterion | 200 | ||
| 5.3.2 Guidelines for Selecting a MARR | 205 | ||
| 5.3.3 Meaning of Net Present Worth | 206 | ||
| 5.3.4 Net Future Worth and Project Balance Diagram | 210 | ||
| 5.3.5 Capitalized-Equivalent Method | 211 | ||
| 5.4 Methods to Compare Mutually Exclusive Alternatives | 213 | ||
| 5.4.1 Doing Nothing Is a Decision Option | 214 | ||
| 5.4.2 Service Projects versus Revenue Projects | 214 | ||
| 5.4.3 Analysis Period Equals Project Lives | 215 | ||
| 5.4.4 Analysis Period Differs from Project Lives | 219 | ||
| Summary | 225 | ||
| Self-Test Questions | 225 | ||
| Problems | 228 | ||
| Chapter 6 Annual Equivalence Analysis | 248 | ||
| 6.1 Annual-Equivalent Worth Criterion | 250 | ||
| 6.1.1 Benefits of AE Analysis | 254 | ||
| 6.1.2 Capital (Ownership) Costs versus Operating Costs | 254 | ||
| 6.2 Applying Annual-Worth Analysis | 259 | ||
| 6.2.1 Unit-Profit or Unit-Cost Calculation | 259 | ||
| 6.2.2 Make-or-Buy Decision | 263 | ||
| 6.3 Comparing Mutually Exclusive Projects | 266 | ||
| 6.3.1 Analysis Period Equals Project Lives | 266 | ||
| 6.3.2 Analysis Period Differs from Project Lives | 271 | ||
| Summary | 274 | ||
| Self-Test Questions | 274 | ||
| Problems | 277 | ||
| Chapter 7 Rate-of-Return Analysis | 294 | ||
| 7.1 Rate of Return | 296 | ||
| 7.1.1 Return on Investment | 296 | ||
| 7.1.2 Return on Invested Capital | 297 | ||
| 7.2 Methods for Finding Rate of Return | 298 | ||
| 7.2.1 Simple versus Nonsimple Investments | 298 | ||
| 7.2.2 Computational Methods | 300 | ||
| 7.3 Internal-Rate-of-Return Criterion | 307 | ||
| 7.3.1 Relationship to the PW Analysis | 307 | ||
| 7.3.2 Decision Rule for Simple Investments | 307 | ||
| 7.3.3 Decision Rule for Nonsimple Investments | 311 | ||
| 7.4 Incremental Analysis for Comparing Mutually Exclusive Alternatives | 313 | ||
| 7.4.1 Flaws in Project Ranking by IRR | 313 | ||
| 7.4.2 Incremental-Investment Analysis | 314 | ||
| 7.4.3 Handling Unequal Service Lives | 320 | ||
| Summary | 322 | ||
| Self-Test Questions | 322 | ||
| Problems | 326 | ||
| Chapter 7A: Resolution of Multiple Rates of Return | 342 | ||
| 7A-1 Net-Investment Test | 342 | ||
| 7A-2 The Need for an External Interest Rate | 344 | ||
| 7A-3 Calculation of Return on Invested Capital for Mixed Investments | 345 | ||
| Chapter 8 Benefit–Cost Analysis | 350 | ||
| 8.1 Evaluation of Public Projects | 352 | ||
| 8.1.1 Valuation of Benefits and Costs | 353 | ||
| 8.1.2 Users’ Benefits | 353 | ||
| 8.1.3 Sponsor’s Costs | 353 | ||
| 8.1.4 Social Discount Rate | 354 | ||
| 8.2 Benefit–Cost Analysis | 355 | ||
| 8.2.1 Definition of Benefit–Cost Ratio | 355 | ||
| 8.2.2 Incremental B/C-Ratio Analysis | 358 | ||
| 8.3 Profitability Index | 362 | ||
| 8.3.1 Definition of Profitability Index | 362 | ||
| 8.3.2 Incremental PI Ratio for Mutually Exclusive Alternatives | 364 | ||
| 8.4 Highway Benefit–Cost Analysis | 366 | ||
| 8.4.1 Define the Base Case and the Proposed Alternatives | 366 | ||
| 8.4.2 Highway User Benefits | 367 | ||
| 8.4.3 Sponsors’ Costs | 367 | ||
| 8.4.4 Illustrating Case Example | 368 | ||
| Summary | 372 | ||
| Self-Test Questions | 372 | ||
| Problems | 375 | ||
| PART 3 DEVELOPMENT OF PROJECT CASH FLOWS | 383 | ||
| Chapter 9 Accounting for Depreciation and Income Taxes | 384 | ||
| 9.1 Accounting Depreciation | 386 | ||
| 9.1.1 Depreciable Property | 386 | ||
| 9.1.2 Cost Basis | 387 | ||
| 9.1.3 Useful Life and Salvage Value | 388 | ||
| 9.1.4 Depreciation Methods: Book and Tax Depreciation | 388 | ||
| 9.2 Book Depreciation Methods | 390 | ||
| 9.2.1 Straight-Line Method | 390 | ||
| 9.2.2 Declining-Balance Method | 392 | ||
| 9.2.3 Units-of-Production Method | 396 | ||
| 9.3 Tax Depreciation Methods | 397 | ||
| 9.3.1 MACRS Recovery Periods | 397 | ||
| 9.3.2 MACRS Depreciation: Personal Property | 398 | ||
| 9.3.3 MACRS Depreciation: Real Property | 401 | ||
| 9.4 Corporate Taxes | 403 | ||
| 9.4.1 How to Determine “Accounting Profit” | 403 | ||
| 9.4.2 U.S. Corporate Income Tax Rates | 405 | ||
| 9.4.3 Gain Taxes on Asset Disposals | 407 | ||
| Summary | 411 | ||
| Self-Test Questions | 412 | ||
| Problems | 414 | ||
| Chapter 10 Project Cash-Flow Analysis | 426 | ||
| 10.1 Understanding Project Cost Elements | 428 | ||
| 10.1.1 Classifying Costs for Manufacturing Environments | 428 | ||
| 10.1.2 Classifying Costs for Financial Statements | 430 | ||
| 10.1.3 Classifying Costs for Predicting Cost Behavior | 431 | ||
| 10.2 Why Do We Need to Use Cash Flows in Economic Analysis? | 435 | ||
| 10.3 Income-Tax Rate to Be Used in Project Evaluation | 436 | ||
| 10.4 Incremental Cash Flows from Undertaking a Project | 439 | ||
| 10.4.1 Operating Activities | 439 | ||
| 10.4.2 Investing Activities | 442 | ||
| 10.4.3 Financing Activities | 443 | ||
| 10.5 Developing Project Cash Flow Statements | 443 | ||
| 10.5.1 When Projects Require Only Operating and Investing Activities | 443 | ||
| 10.5.2 When Projects Are Financed with Borrowed Funds | 447 | ||
| 10.6 Effects of Inflation on Project Cash Flows | 449 | ||
| 10.6.1 Depreciation Allowance under Inflation | 449 | ||
| 10.6.2 Handling Multiple Inflation Rates | 453 | ||
| Summary | 455 | ||
| Self-Test Questions | 456 | ||
| Problems | 459 | ||
| Chapter 11 Handling Project Uncertainty | 480 | ||
| 11.1 Origins of Project Risk | 483 | ||
| 11.2 Methods of Describing Project Risk | 483 | ||
| 11.2.1 Sensitivity Analysis | 483 | ||
| 11.2.2 Sensitivity Analysis for Mutually Exclusive Alternatives | 488 | ||
| 11.2.3 Break-Even Analysis | 491 | ||
| 11.2.4 Scenario Analysis | 492 | ||
| 11.3 Probabilistic Cash Flow Analysis | 495 | ||
| 11.3.1 Including Risk in Investment Evaluation | 496 | ||
| 11.3.2 Aggregating Risk over Time | 497 | ||
| 11.3.3 Estimating Risky Cash Flows | 500 | ||
| 11.4 Considering the Project Risk by Discount Rate | 504 | ||
| 11.4.1 Determining the Company Cost of Capital | 504 | ||
| 11.4.2 Project Cost of Capital: Risk-Adjusted Discount Rate Approach | 509 | ||
| Summary | 511 | ||
| Self-Test Questions | 512 | ||
| Problems | 514 | ||
| PART 4 SPECIAL TOPICS IN ENGINEERING ECONOMICS | 529 | ||
| Chapter 12 Replacement Decisions | 530 | ||
| 12.1 Replacement-Analysis Fundamentals | 532 | ||
| 12.1.1 Basic Concepts and Terminology | 533 | ||
| 12.1.2 Approaches for Comparing Defender and Challenger | 535 | ||
| 12.2 Economic Service Life | 539 | ||
| 12.3 Replacement Analysis When the Required Service Period Is Long | 545 | ||
| 12.3.1 Required Assumptions and Decision Frameworks | 545 | ||
| 12.3.2 Handling Unequal Service Life Problems in Replacement Analysis | 546 | ||
| 12.3.3 Replacement Strategies under the Infinite Planning Horizon | 546 | ||
| 12.4 Replacement Analysis with Tax Considerations | 552 | ||
| Summary | 559 | ||
| Self-Test Questions | 560 | ||
| Problems | 561 | ||
| Chapter 13 Understanding Financial Statements | 574 | ||
| 13.1 Accounting: The Basis of Decision Making | 576 | ||
| 13.2 Financial Status for Businesses | 577 | ||
| 13.2.1 The Balance Sheet | 579 | ||
| 13.2.2 The Income Statement | 584 | ||
| 13.2.3 The Cash-Flow Statement | 586 | ||
| 13.3 Using Ratios to Make Business Decisions | 592 | ||
| 13.3.1 Debt Management Analysis | 592 | ||
| 13.3.2 Liquidity Analysis | 595 | ||
| 13.3.3 Asset Management Analysis | 596 | ||
| 13.3.4 Profitability Analysis | 597 | ||
| 13.3.5 Market-Value Analysis | 599 | ||
| 13.3.6 Limitations of Financial Ratios in Business Decisions | 601 | ||
| 13.3.7 Where We Get the Most Up-to-Date Financial Information | 603 | ||
| 13.4 Principle of Investing in Financial Assets | 603 | ||
| 13.4.1 Trade-Off between Risk and Reward | 603 | ||
| 13.4.2 Broader Diversification Reduces Risk | 603 | ||
| 13.4.3 Broader Diversification Increases Expected Return | 605 | ||
| Summary | 607 | ||
| Self-Test Questions | 608 | ||
| Problems | 612 | ||
| Appendix A: Answers to the Self-Test Questions | 621 | ||
| Appendix B: Interest Factors for Discrete Compounding | 649 | ||
| Appendix C: How to Read the Cumulative Standardized Normal Distribution Function | 679 | ||
| Index | 683 | ||
| A | 683 | ||
| B | 683 | ||
| C | 684 | ||
| D | 685 | ||
| E | 685 | ||
| F | 687 | ||
| G | 687 | ||
| H | 687 | ||
| I | 687 | ||
| K | 688 | ||
| L | 688 | ||
| M | 688 | ||
| N | 689 | ||
| O | 689 | ||
| P | 689 | ||
| Q | 690 | ||
| R | 690 | ||
| S | 691 | ||
| T | 691 | ||
| U | 692 | ||
| V | 692 | ||
| W | 692 | ||
| Y | 692 | ||
| Z | 692 |