Engineering Economic Analysis,9781576450536

Engineering Economic Analysis

by ; ;
Edition: 8th
ISBN13: 9781576450536
ISBN10: 1576450538
Format: Hardcover
Pub. Date: 2000-06-08
Publisher(s): Oxford University Press
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Summary

Highly regarded by professors and students alike , Engineering Economic Analysis, Eighth Edition , introduces the fundamental concepts of engineering economics. Written for standard engineering economics courses, this bestselling volume by Donald G. Newnan, Jerome P. Lavelle, and Ted G. Eschenbach covers essential time value of money principles for engineering projects and isolates the problems and decisions engineers commonly face. It also examines the tools necessary to properly analyze and solve those problems. Revised in 2000, the eighth edition focuses on the use of spreadsheets, teaching students to use the enormous capabilities of modern software, rather than relying on spreadsheet templates. The majority of the chapters conclude with sections designed to help students create spreadsheets based on the material covered in each chapter. The book's organization gives professors the flexibility to omit spreadsheet instruction without loss of continuity (accommodating shorter courses) or to require that all computations be done with spreadsheets, thus preparing students to use this essential tool for real-life problems.

Table of Contents

Compound Interest Equations
Economic Criteria
Preface ix
Making Economic Decisions
1(30)
A Sea Of Problems
1(1)
Simple Problems
Intermediate Problems
Complex Problems
The Role Of Engineering Economic Analysis
2(2)
Examples of Engineering Economic Analysis
The Decision Making Process
4(10)
Rational Decision Making: Recognize problem
Define the goals
Assemble relevant data
Identify feasible alternatives
Select the criterion
Construct a model
Predict each alternative's outcomes
Choose the best alternative
Audit the results
Engineering Decision Making
14(4)
Summary
18(1)
Problems
19(12)
Engineering Costs and Cost Estimating
31(42)
Engineering Costs
Fixed
Variable
Marginal
and Average Costs
Sunk Costs
Opportunity Costs
Recurring and Non-recurring Costs
Incremental Costs
Cash Costs versus Book Costs
Life-cycle Costs
Cost Estimating
43(3)
Types of Estimates
Difficulties in Estimation
One-of-a-Kind Estimates
Time and effort available
Estimator expertise
Estimating Models
46(10)
Per Unit Model
Segmenting Model
Cost Indexes
Power Sizing Model
Triangulation
Improvement and the Learning Curve
Estimating Benefits
56(1)
Cash Flow Diagrams
57(3)
Categories of Cash Flows
Drawing a Cash Flow Diagram
Drawing a Cash Flow Diagram with a Spreadsheet
Summary
60(1)
Problems
61(12)
Interest and Equivalence
73(24)
Computing Cash Flows
73(2)
Time Value of Money
75(1)
Simple Interest
76(3)
Repaying a Debt
Equivalence
79(6)
Difference in Repayment Plans
Equivalence is Dependent on Interest Rate
Application of Equivalence Calculations
Single Payment Compound Interest
85(8)
Summary
93(1)
Problems
94(3)
More Interest Formulas
97(70)
Uniform Series Compound Interest Formulas
97(11)
Relationships Between Compound Interest Factors
108(2)
Single Payment
Uniform Series
Arithmetic Gradient
110(8)
Derivation of Arithmetic Gradient Factors
Geometric Gradient
118(4)
Nominal And Effective Interest
122(7)
Continuous Compounding
129(7)
Single Payment Interest Factors
Uniform Payment Series
Continuous
Uniform Cash Flow
Spreadsheets for Economic Analysis
136(5)
Spreadsheet Annuity Functions
Spreadsheet Block Functions Basic Graphing Using Spreadsheets
Summary
141(4)
Problems
145(22)
Present Worth Analysis
167(40)
Economic Criteria
167(1)
Applying Present Worth Techniques
168(15)
Useful Lives Equal the Analysis Period
Net Present Worth Useful Lives Different from the Analysis Period
Infinite Analysis Period-Capitalized Cost
Multiple Alternatives
Assumptions In Solving Economic Analysis Problems
183(5)
End-of-year Convention
Viewpoint of Economic Analysis Studies
Sunk Costs
Borrowed Money Viewpoint
Effect of Inflation and Deflation
Income taxes
Spreadsheets and Present Worth
Summary
188(1)
Problems
189(18)
Annual Cash Flow Analysis
207(34)
Annual Cash Flow Calculations
207(5)
Resolving a Present Cost to an Annual Cost
Treatment of Salvage Value
Annual Cash Flow Analysis
212(3)
Analysis Period
215(6)
Analysis Period Equal to Alternative Lives
Analysis Period a Common Multiple of Alternative Lives
Analysis Period for a Continuing Requirement
Infinite Analysis Period
Some Other Analysis Period
Using Spreadsheets to Analyze Loans
221(4)
Building an Amortization Schedule
How Much to Interest? How Much to Principal?
Finding the Balance Due on a Loan
Payoff Debt Sooner by Increasing Payments
Summary
225(1)
Problems
226(15)
Rate Of Return Analysis
241(34)
Internal Rate Of Return
241(2)
Calculating Rate Of Return
243(7)
Plot of NPW vs. Interest Rate i
Rate Of Return Analysis
250(10)
Analysis Period
Spreadsheets and Rate of Return Analysis
Summary
260(2)
Problems
262(13)
Difficulties Solving For An Interest Rate
275(20)
Converting a Cash Flow to a Mathematical Equation
Cash Flow Rule Of Signs
278(5)
Zero Sign Changes
One Sign Change
Two or More Sign Changes
What the Difficulties Mean
External Interest Rate
283(3)
Resolving Multiple Rate of Return Problems
A Further Look at the Computation of Rate of Return
Summary
286(1)
Problems
287(8)
Incremental Analysis
295(32)
Graphical Solutions
295(9)
Incremental Rate Of Return Analysis
304(5)
Elements In Incremental Rate Of Return Analysis
309(3)
Incremental Analysis Where There are Unlimited Alternatives
Present Worth Analysis with Benefit-Cost Graphs
312(1)
Choosing An Analysis Method
313(1)
Spreadsheets and Incremental Analysis
314(1)
Summary
315(1)
Problems
316(11)
Other Analysis Techniques
327(38)
Future Worth Analysis
328(2)
Benefit-Cost Ratio Analysis
330(7)
Continuous Alternatives
Payback Period
337(5)
Sensitivity And Break-even Analysis
342(8)
Graphing with Spreadsheets for Sensitivity and Breakeven Analysis
347(3)
Summary
350(1)
Problems
351(14)
Depreciation
365(40)
Basic Aspects Of Depreciation
365(4)
Deterioration and Obsolescence
Depreciation and Expenses
Types of Property
Depreciation Calculation Fundamentals
Historical Depreciation Methods
369(7)
Straight Line Depreciation
Sum-Of-Years Digits Depreciation
Declining Balance Depreciation
Modified Accelerated Cost Recovery System Depreciation
376(10)
Cost Basis and Placed in Service Date
Property Class and Recovery Period
Percentage Tables
Where MACRS Percentage Rates Come From
MACRS Method Examples
Comparing MACRS and Historical Methods
Depletion and Asset Disposal
386(3)
Unit of Production Depreciation
389(1)
Depletion
390(3)
Cost Depletion
Percentage Depletion
Spreadsheets and Depreciation
393(2)
Summary
395(1)
Problems
396(9)
Income Taxes
405(34)
A Partner In The Business
405(1)
Calculation Of Taxable Income
406(3)
Taxable Income of Individuals
Classification of Business Expenditures
Taxable Income of Business Firms
Income Tax Rates
409(5)
Individual Tax Rates
Corporate Tax Rates
Combined Federal and State Income Taxes
Selecting an Income Tax Rate for Economic Studies
Economic Analysis Taking Income Taxes Into Account
414(3)
Capital Gains And Losses For Non-depreciable Assets
417(2)
Investment Tax Credit
Estimating The After-Tax Rate Of Return
419(1)
Summary
419(1)
Problems
420(19)
Replacement Analysis
439(44)
The Replacement Problem
440(1)
Replacement Analysis Decision Map
441(1)
What Is The Basic Comparison
442(21)
Minimum Cost Life of the Challenger
Use of Marginal Cost Data Replacement Analysis Technique #1
Minimum Cost Life of the Defender
Replacement Analysis Technique #2
No Defender Marginal Cost Data Available
Replacement Analysis Technique #3 Repeatability Assumptions not Acceptable
A Closer Look at Future Challengers
After-Tax Replacement Analysis
463(8)
Marginal Costs on an After-Tax Basis
After-Tax Cash Flows for the Challenger
After-Tax Cash Flows for the Defender
Minimum Cost Life Problems
Spreadsheets and After-Tax Replacement Analysis
471(1)
Summary
472(2)
Problems
474(9)
Inflation And Price Change
483(36)
Meaning And Effect Of Inflation
483(9)
How Does Inflation Happen?
Definitions for Considering Inflation in Engineering Economy
Constant Dollar Versus Then-Current Dollar Analysis
492(2)
Price Change with Indexes
494(6)
What is a Price Index? Composite Versus Commodity Indexes
How to Use Price Indexes in Engineering Economic Analysis
Cash Flows That Inflate At Different Rates
500(2)
Different Inflation Rates Per Period
502(2)
Inflation Effect On After-Tax Considerations
504(2)
Using Spreadsheets for Inflation Calculations
506(3)
Summary
509(1)
Problems
510(9)
Estimation Of Future Events
519(38)
Precise Estimates
519(3)
A Range Of Estimates
522(2)
Probability And Risk
524(2)
Expected Value
526(5)
Distribution Of Outcomes
531(11)
Uniform Distribution
Normal Distribution
Sampling from Any Distribution using Random Numbers
Simulation
542(7)
Simulation with Spreadsheets
Summary
549(1)
Problems
550(7)
Selection Of A Minimum Attractive Rate Of Return
557(18)
Sources Of Capital
557(1)
Money Generated from the Operation of the Firm
External Money Sources
Choice of Source of Funds
Cost Of Funds
558(2)
Cost of Borrowed Money
Cost of Capital
Investment Opportunities
560(3)
Opportunity Cost
Selecting A Minimum Attractive Rate Of Return
563(1)
Adjusting MARR To Account For Risk And Uncertainty Inflation and the Cost of Borrowed Money
564(3)
Opportunity Cost
Representative Values Of MARR Used In Industry
567(1)
Spreadsheets, Cumulative Investments, and the Opportunity Cost
568(2)
Summary
570(1)
Problems
571(4)
Economic Analysis In The Public Sector
575(30)
Investment Objective
576(1)
Viewpoint For Analysis
577(2)
Selecting An Interest Rate
579(2)
The Benefit-Cost Ratio
581(4)
Incremental Benefit-Cost Analysis
585(7)
Elements of the Incremental Benefit-Cost Ratio Method
Other Effects Of Public Projects
592(5)
Project Financing
Project Duration
Project Politics
Summary
597(1)
Problems
598(7)
Rationing Capital Among Competing Projects
605(26)
Capital Expenditure Project Proposals
606(4)
Mutually Exclusive Alternatives and Single Project Proposals
Identifying and Rejecting Unattractive Alternatives
Selecting the Best Alternative from Each Project Proposal
Rationing Capital By Rate Of Return
610(2)
Significance of the Cutoff Rate of Return
Rationing Capital By Present Worth Methods
612(7)
Ranking Project Proposals
619(2)
Summary
621(1)
Problems
622(9)
A Further Look At Rate Of Return
631(22)
Cash Flow Situations
632(1)
Analysis Of A Cash Flow As An Investment Situation
633(16)
Cash Flow Rule of Signs
Accumulated Cash Flow Sign Test
Algebraic Sum of the Cash Flow
Net Investment Conditions Application of the Four Tests of a Cash Flow
Summary
649(1)
Problems
650(3)
References 653(2)
Index 655(8)
Compound Interest Tables 663
Discrete End-Of-Period Compounding
663
Values Of Interest Factors When N Equals Infinity
663

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