Fundamentals of Engineering Economics, 4th edition
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Overview
Fundamentals of Engineering Economics relates engineering economics to your everyday life to help you grasp its theory, concepts and practical concerns. You'll build skills to make informed financial decisions and to use critical decisionmaking tools, including the most contemporary, computeroriented ones.
Published by Pearson (July 14th 2021)  Copyright © 2019
ISBN13: 9780137524761
Subject: Industrial Engineering
Category: Engineering Economics
Table of contents
PART 1: UNDERSTANDING MONEY AND ITS MANAGEMENT
1. Engineering Economic Decisions
1.1 The Rational DecisionMaking Process
1.1.1 How Do We Make Typical Personal Decisions?
1.1.2 How Do We Approach an Engineering Design Problem?
1.1.3 What Makes Economic Decisions Different from Other Design Decisions?
1.2 The Engineer's Role in Business
1.2.1 Making CapitalExpenditure Decisions
1.2.2 LargeScale Engineering Economic Decisions
1.2.3 Impact of Engineering Projects on Financial Statements
1.3 Types of Strategic Engineering Economic Decisions
1.3.1 New Products or Product Expansion
1.3.2 Equipment and Process Selection
1.3.3 Cost Reduction
1.3.4 Equipment Replacement
1.3.5 Service or Quality Improvement
1.4 Fundamental Principles in Engineering Economics
Summary
SelfTest Questions
Problems
2. Time Value of Money
2.1 Interest: The Cost of Money
2.1.1 The Time Value of Money
2.1.2 Elements of Transactions Involving Interest
2.1.3 Methods of Calculating Interest
2.2 Economic Equivalence
2.2.1 Definition and Simple Calculations
2.2.2 Equivalence Calculations Require a Common Time Basis for Comparison
2.3 Interest Formulas for Single Cash Flows
2.3.1 CompoundAmount Factor
2.3.2 PresentWorth Factor
2.3.3 Solving for Time and Interest Rates
2.4 UnevenPayment Series
2.5 EqualPayment Series
2.5.1 CompoundAmount Factor: Find F , Given A , i , and N
2.5.2 SinkingFund Factor: Find A , Given F , i , and N
2.5.3 CapitalRecovery Factor (Annuity Factor): Find A , Given P , i and N
2.5.4 PresentWorth Factor: Find P , Given A , i , and N
2.5.5 Present Value of Perpetuities
2.6 Dealing with Gradient Series
2.6.1 Handling Linear Gradient Series
2.6.2 Handling Geometric Gradient Series
2.7 More on Equivalence Calculations
Summary
SelfTest Questions
Problems
3. Understanding Money Management
3.1 Market Interest Rates
3.1.1 Nominal Interest Rates
3.1.2 Annual Effective Interest Rates
3.2 Calculating Effective Interest Rates Based on Payment Periods
3.2.1 Discrete Compounding
3.2.2 Continuous Compounding
3.3 Equivalence Calculations with Effective Interest Rates
3.3.1 Compounding Period Equal to Payment Period
3.3.2 Compounding Occurs at a Different Rate than That at Which Payments are Made
3.4 Debt Management
3.4.1 Borrowing with Credit Cards
3.4.2 Commercial Loans: Calculating Principal and Interest Payments
3.4.3 Comparing Different Financing Options
Summary
SelfTest Questions
Problems
4. Equivalence Calculations under Inflation
4.1 Measure of Inflation
4.1.1 Consumer Price Index
4.1.2 Producer Price Index
4.1.3 Average Inflation Rate
4.1.4 General Inflation Rate ( f ) versus Specific Inflation Rate ( fj )
4.2 Actual versus Constant Dollars
4.2.1 Conversion from Constant to Actual Dollars
4.2.2 Conversion from Actual to Constant Dollars
4.3 Equivalence Calculations under Inflation
4.3.1 Market and InflationFree Interest Rates
4.3.2 ConstantDollar Analysis
4.3.3 ActualDollar Analysis
4.3.4 MixedDollar Analysis
Summary
SelfTest Questions
Problems
PART 2: EVALUATING BUSINESS AND ENGINEERING ASSETS
5. PresentWorth Analysis
5.1 Loan versus Project Cash Flows
5.2 Initial Project Screening Methods
5.2.1 Benefits and Flaws of Payback Screening
5.2.2 DiscountedPayback Period
5.3 PresentWorth Analysis
5.3.1 NetPresentWorth Criterion
5.3.2 Guidelines for Selecting a MARR
5.3.3 Meaning of Net Present Worth
5.3.4 Net Future Worth and Project Balance Diagram
5.3.5 CapitalizedEquivalent Method
5.4 Methods to Compare Mutually Exclusive Alternatives
5.4.1 Doing Nothing Is a Decision Option
5.4.2 Service Projects versus Revenue Projects
5.4.3 Analysis Period Equals Project Lives
5.4.4 Analysis Period Differs from Project Lives
Summary
SelfTest Questions
Problems
6. AnnualEquivalence Analysis
6.1 AnnualEquivalent Worth Criterion
6.1.1 Benefits of AE Analysis
6.1.2 Capital (Ownership) Costs versus Operating Costs
6.2 Applying AnnualWorth Analysis
6.2.1 UnitProfit or UnitCost Calculation
6.2.2 MakeorBuy Decision
6.3 Comparing Mutually Exclusive Projects
6.3.1 Analysis Period Equals Project Lives
6.3.2 Analysis Period Differs from Project Lives
Summary
SelfTest Questions
Problems
7. RateofReturn Analysis
7.1 Rate of Return
7.1.1 Return on Investment
7.1.2 Return on Invested Capital
7.2 Methods for Finding Rate of Return
7.2.1 Simple versus Nonsimple Investments
7.2.2 Computational Methods
7.3 InternalRateofReturn Criterion
7.3.1 Relationship to the PW Analysis
7.3.2 Decision Rule for Simple Investments
7.3.3 Decision Rule for Nonsimple Investments
7.4 Incremental Analysis for Comparing Mutually Exclusive Alternatives
7.4.1 Flaws in Project Ranking by IRR
7.4.2 IncrementalInvestment Analysis
7.4.3 Handling Unequal Service Lives
Summary
SelfTest Questions
Problems
8. BenefitCost Analysis
8.1 Evaluation of Public Projects
8.1.1 Valuation of Benefits and Costs
8.1.2 Users' Benefits
8.1.3 Sponsor's Costs
8.1.4 Social Discount Rate
8.2 BenefitCost Analysis
8.2.1 Definition of BenefitCost Ratio
8.2.2 Incremental B/CRatio Analysis
8.3 Profitability Index
8.3.1 Definition of Profitability Index
8.3.2 Incremental PI Ratio for Mutually Exclusive Alternatives
8.4 Highway BenefitCost Analysis
8.4.1 Define the Base Case and the Proposed Alternatives
8.4.2 Highway User Benefits
8.4.3 Sponsors' Costs
8.4.4 Illustrating Case Example
Summary
SelfTest Questions
Problems
PART 3: DEVELOPMENT OF PROJECT CASH FLOWS
9. Accounting for Depreciation and Income Taxes
9.1 Accounting Depreciation
9.1.1 Depreciable Property
9.1.2 Cost as Basis
9.1.3 Useful Life and Salvage Value
9.1.4 Depreciation Methods: Book and Tax Depreciation
9.2 Book Depreciation Methods
9.2.1 StraightLine Method
9.2.2 DecliningBalance Method
9.2.3 UnitsofProduction Method
9.3 Tax Depreciation Methods
9.3.1 MACRS Recovery Periods
9.3.2 MACRS Depreciation: Personal Property
9.3.3 MACRS Depreciation: Real Property
9.4 Corporate Taxes
9.4.1 How to Determine "Accounting Profit"
9.4.2 U.S. Corporate Income Tax Rates
9.4.3 Gain Taxes on Asset Disposals
Summary
SelfTest Questions
Problems
10. Project CashFlow Analysis
10.1 Understanding Project Cost Elements
10.1.1 Classifying Costs for Manufacturing Environments
10.1.2 Classifying Costs for Financial Statements
10.1.3 Classifying Costs for Predicting Cost Behavior
10.2 Why Do We Need to Use Cash Flows in Economic Analysis?
10.3 IncomeTax Rate to Be Used in Project Evaluation
10.4 Incremental Cash Flows from Undertaking a Project
10.4.1 Operating Activities
10.4.2 Investing Activities
10.4.3 Financing Activities
10.5 Developing Project Cash Flow Statements
10.5.1 When Projects Require Only Operating and Investing Activities
10.5.2 When Projects Are Financed with Borrowed Funds
10.6 Effects of Inflation on Project Cash Flows
10.6.1 Depreciation Allowance under Inflation
10.6.2 Handling Multiple Inflation Rates
Summary
SelfTest Questions
Problems
11. Handling Project Uncertainty
11.1 Origins of Project Risk
11.2 Methods of Describing Project Risk
11.2.1 Sensitivity Analysis
11.2.2 Sensitivity Analysis for Mutually Exclusive Alternatives
11.2.3 BreakEven Analysis
11.2.4 Scenario Analysis
11.3 Probabilistic Cash Flow Analysis
11.3.1 Including Risk in Investment Evaluation
11.3.2 Aggregating Risk over Time
11.3.3 Estimating Risky Cash Flows
11.4 Considering the Project Risk by Discount Rate
11.4.1 Determining the Company Cost of Capital
11.4.2 Project Cost of Capital: RiskAdjusted Discount Rate Approach
Summary
SelfTest Questions
Problems
PART 4: SPECIAL TOPICS IN ENGINEERING ECONOMIC
12. Replacement Decisions
12.1 ReplacementAnalysis Fundamentals
12.1.1 Basic Concepts and Terminology
12.1.2 Approaches for Comparing Defender and Challenger
12.2 Economic Service Life
12.3 Replacement Analysis when the Required Service Period is Long
12.3.1 Required Assumptions and Decision Frameworks
12.3.2 Handling Unequal Service Life Problems in Replacement Analysis
12.3.3 Replacement Strategies under the Infinite Planning Horizon
12.4 Replacement Analysis with Tax Considerations
Summary
SelfTest Questions
Problems
13. Understanding Financial Statements
13.1 Accounting: The Basis of Decision Making
13.2 Financial Status for Businesses
13.2.1 The Balance Sheet
13.2.2 The Income Statement
13.2.3 The CashFlow Statement
13.3 Using Ratios to Make Business Decisions
13.3.1 Debt Management Analysis
13.3.2 Liquidity Analysis
13.3.3 Asset Management Analysis
13.3.4 Profitability Analysis
13.3.5 MarketValue Analysis
13.3.6 Limitations of Financial Ratios in Business Decisions
13.3.7 Where We Get the Most UptoDate Financial Information
13.4 Principle of Investing in Financial Assets
13.4.1 TradeOff between Risk and Reward
13.4.2 Broader Diversification Reduces Risk
13.4.3 Broader Diversification Increases Expected Return
Summary
SelfTest Questions
Problems
Appendix A SelfTest Questions with Answers
Appendix B Interest Factors for Discrete Compounding
Appendix C How to Read the Cumulative Standardized Normal Distribution Function
Appendix D Summary of Essential Interest Formulas, Decision Rules, and Excel Functions
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