Preface
PART I INTRODUCTION TO ENGINEERING ECONOMY
Chapter 1
Engineering and Engineering Economy
1.1.Engineering and Science2
1.2.The Bi-Environmental Nature of Engineering
1.3.Physical and Economic Efficiency5
1.4.The Engineering Process6
1.5.Engineering for Economic Competitiveness10
1.6.Engineering Economy and the Engineer11
Key Points13
Questions13
Chapter 2
Some Economic and Cost Concepts
2.1.Concepts of Value and Utility15
2.2.Consumer and Producer Goods16
2.3.Economic Aspects of Exchange18
2.4.Classifications of Cost21
2.5.Life-Cycle Cost 25
2.6.Interest and Interest Rate28
2.7.The Time Value of Money30
2.8.The Earning Power of Money31
2.9.The Purchasing power of Money32
Key Points 33
Questions33
PART II INTEREST FORMULAS AND EQUIVALENCE35
Chapter 3
Interest Formulas
3.1.Simple and Compound Interest36
3.2.Describing Cash Flows Over Time38
3.3.Interest Formulas Discrete Compounding, Discrete Payments 40
3.4.Interest-Formula Relationships53
3.5.Compounding Frequency Considerations55
3.6.Interest Formulas Continuous Compounding, Discrete Payments 59
3.7.Summary of Interest Formulas63
Problems65
Chapter 4
Calculations of Economic Equivalence
4.1.The Meaning of Equivalence72
4.2.Equivalence Calculations Involving a Single Factor74
4.3.Equivalence Calculations Involving Cash Flows81
4.4.Principles of Equivalence85
4.5.Equivalence Calculations with More Frequent Compounding89
4.6.Equivalence Calculations Involving Bonds93
4.7.Equivalence Calculations Involving Loans97
4.8.Equivalence Calculations Involving Working Capital101
Key Points 102
Problems103
Chapter 5
Equivalence Involving Inflation
5.1.Measures of Inflation and Deflation115
5.2.The Inflation Rate117
5.3.Considering the Effects of Inflation123
5.4.Analyzing Inflation in Investments128
Key Points139
Problems140
PART III ECONOMIC ANALYSIS OF ALTERNATIVES
Chapter 6
Bases for Comparison of Alternatives
6.1.Present Worth152
6.2.Annual Equivalent154
6.3.Future Worth 156
6.4.Internal Rate of Return157
6.5.Payback Period166
6.6.Capitalized Equivalent Amount170
6.7.Capital Recovery with Return171
6.8.Project Balance173
Key Points179
Problems180
Chapter 7
Decision Making Among Alternatives
7.1.Types of Investment Proposals190
7.2.Forming Mutually Exclusive Alternatives192
7.3.Elements of Decision Criteria197
7.4.Present Worth on Incremental Investment 202
7.5.IRR on Incremental Investment205
7.6.Comparisons Based on Total Investment209
7.7.Comparing Alternatives with Unequal Lives215
Key Points225
Problems225
Chapter 8
Evaluating Production Operations
8.1.Characteristics of Production Operations244
8.2.Break-Even Analysis248
8.3.Operation and Production Decisions261
8.4.Economic Operation of Equipment271
8.5.Models for Procurement Operations276
Key Points283
Problems284
Chapter 9
Evaluating Replacement Alternatives
9.1.The Genera] Nature of Replacement Analysis297
9.2.Describing Replacement Alternatives299
9.3.Replacement Analysis for Unequal Lives304
9.4.The Economic Life of an Asset307
9.5.Replacement Assumptions and Decisions311
9.6.Retirement or Abandonment Decisions323
9.7.Examples of Replacement Problems324
Key Points330
Problems331
Chapter 1 0
Evaluating Public Activities
10.1.General Welfare Aim of Government348
10.2.The Nature of Public Activities350
10.3.Financing Public Activities352
10.4.Public Activities and Engineering Economy355
10.5.Benefit-Cost Analysis355
10.6.Identifying Benefits, Disbenefits, and Costs367
10.7.Cost-Effectiveness Analysis370
Key Points374
Questions and Problems374
PART IV ACCOUNTING, DEPRECIATION, AND INCOME TAXES
Chapter 11
Accounting and Depreciation Accounting
11.1.General Accounting388
11.2.Cost Accounting391
11.3.Depreciation397
11.4.Accounting for the Depreciation of Capital Assets399
11.5.Basic Depreciation Methods401
11.6.Modified Accelerated Cost Recovery System MACRS 406
11.7.Units-of-Production Depreciation411
11.8.Depletion412
Key Points414
Questions and Problems414
Chapter 12
Income Taxes in Economic Analysis
12.1.Relation of Income Taxes to Profit420
12.2.Federal Income Tax for Corporations421
12.3.Effective Income-Tax Rates425
12.4.Interest and Income Taxes426
12.5.Depreciation and Income Taxes428
12.6.Gain or Loss on Disposition of Depreciable Assets433
12.7. Tax Credits434
12.8. Depletion and Income Taxes434
12.9. Calculating After-Tax Cash Flows436
12.10. Evaluation of Financing Methods Using After-Tax Cash Flows440
12.11. Capital Gains in After-Tax Cash Flows447
12.12. Inflation and its Effects on After-Tax Flows449
12.13. After-Tax Analysis of Replacements450
Key Points 455
Problems456
PART V ESTIMATES, RISK, AND UNCERTAINTY46
Chapter 13
Estimating Economic Elements.
13.1.The Elements to Be Estimated468
13.2.Cost Estimating Methods472
13.3.Adjustment of Cost Data475
13.4.Cost-Estimating Relationships483
13.5.Estimating and Allocating Indirect Costs490
13.6.Accounting Data in Estimating496
13.7.Judgment in Estimating 498
Key Points499
Questions and Problems500
Chapter 14
Estimates and Decision Making
14.1.An Example Decision Based upon Estimates502
14.2.Allowances for Uncertainty in Estimates504
14.3.Considering a Range of Estimates506
14.4.Sensitivity Analysis508
Key Points518
Questions and Problems518
Chapter 15
Decisions Under Risk and Uncertainty
15.1.Criteria for Decisions Under Risk521
15.2.Expected-Value Decision Making525
15.3.Expectation Variance Decision Making528
15.4.Monte Carlo Analysis533
15.5.Decision Trees in Decision Making536
15.6.Decisions Under Uncertainty546
Key Points 552
Problems552
Chapter 16
Decisions Involving Multiple Criteria
16.1.Multiple Criteria Considerations565
16.2.Direct Ranking Methods567
16.3.Systematic Elimination Methods569
16.4.Weighting Methods of Evaluation572
16.5.Decision Evaluation Display574
16.6.Decision Evaluation Display Examples576
16.7.Summary: Making the Decision580
Key Points582
Questions and Problems583
Appendices
Appendix AInterest Factors for Discrete Compounding587
Appendix B Effective Interest Rates Corresponding to Nominal Rate r617
Selected References
Index
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