Engineering Economic Analysis CD-ROM included containing Interactive Tutorials, Excel® Spreadsheets & Interest Tables,9780195168075

Engineering Economic Analysis CD-ROM included containing Interactive Tutorials, Excel® Spreadsheets & Interest Tables

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Edition: 9th
ISBN13: 9780195168075
ISBN10: 0195168070
Format: Hardcover
Pub. Date: 2004-02-26
Publisher(s): Oxford University Press
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Summary

Now in a ninth edition, Engineering Economic Analysis offers comprehensive coverage of financial and economic decision-making for engineering projects, with an emphasis on problem solving, life cycle costs, and the time value of money. The spreadsheet material from the previous edition has been expanded, allowing students to create and analyze more realistic cash-flow models. The authors' concise, accessible writing style and practical emphasis make this text ideal for undergraduate engineering economy courses. Features of the Ninth Edition ·New pedagogical features include: --Chapter-opening vignettes --Chapter objectives ·The interior design will improve readability, generate student interest, and facilitate comprehension of the material. ·A new chapter has been added: Chapter 18, Accounting and Engineering Economy. ·Chapter 10, Probability and Uncertainty, has been completely rewritten to emphasize how to make good choices by considering the uncertainty that is part of every engineering economy application. ·Chapter 13, Replacement Analysis, has been rewritten to clarify the comparison of existing assets with newer alternatives. ·Appendix 7A, Difficulties Solving for an Interest Rate, has been thoroughly revised to use the power of spreadsheets to solve problems. ·End-of-chapter problems are reorganized and updated throughout. ·A companion website is available: http://www.oup.com/us/engineeringeconomy. Enhanced Student Support Packaged with every copy of the text: ·Study Guide, by Edward Wheeler ·CD featuring interactive Excel® spreadsheets and tutorials Enhanced Instructor Support ·CD containing exam files by Meenakshi Sundaram, Excel® spreadsheets, and PowerPoint® slides ·Solutions Manual

Author Biography


DONALD G. NEWNAN, Ph.D., P.E., is Professor Emeritus at San Jose State University. TED G. ESCHENBACH, Ph.D., P.E., is a consultant and Professor Emeritus of Engineering Management at the University of Alaska Anchorage. He is the author of Engineering Economy: Applying Theory to Practice, 2/e (OUP, 2003). JEROME P. LAVELLE, Ph.D., is Assistant Dean in the College of Engineering and Associate Professor of Industrial Engineering at North Carolina State University.

Table of Contents

Preface xvii
Making Economic Decisions
A Sea of Problems
4(1)
Simple Problems
4(1)
Intermediate Problems
4(1)
Complex Problems
4(1)
The Role of Engineering Economic Analysis
5(1)
Examples of Engineering Economic Analysis
5(1)
The Decision-Making Process
6(9)
Rational Decision Making
6(9)
Engineering Decision Making for Current Costs
15(3)
Summary
18(1)
Problems
19(9)
Engineering Costs and Cost Estimating
Engineering Costs
28(10)
Fixed, Variable, Marginal, and Average Costs
28(4)
Sunk Costs
32(1)
Opportunity Costs
32(2)
Recurring and Nonrecurring Costs
34(1)
Incremental Costs
34(1)
Cash Costs Versus Book Costs
35(1)
Life-Cycle Costs
36(2)
Cost Estimating
38(3)
Types of Estimate
38(1)
Difficulties in Estimation
39(2)
Estimating Models
41(9)
Per-Unit Model
41(2)
Segmenting Model
43(1)
Cost Indexes
44(1)
Power-Sizing Model
45(2)
Triangulation
47(1)
Improvement and the Learning Curve
47(3)
Estimating Benefits
50(1)
Cash Flow Diagrams
50(2)
Categories of Cash Flows
51(1)
Drawing a Cash Flow Diagram
51(1)
Drawing Cash Flow Diagrams with a Spreadsheet
52(1)
Summary
52(2)
Problems
54(8)
Interest and Equivalence
Computing Cash Flows
62(2)
Time Value of Money
64(4)
Simple Interest
64(1)
Compound Interest
65(1)
Repaying a Debt
66(2)
Equivalence
68(5)
Difference in Repayment Plans
69(2)
Equivalence Is Dependent on Interest Rate
71(1)
Application of Equivalence Calculations
72(1)
Single Payment Compound Interest Formulas
73(8)
Summary
81(1)
Problems
82(4)
More Interest Formulas
Uniform Series Compound Interest Formulas
86(11)
Relationships Between Compound Interest Factors
97(1)
Single Payment
97(1)
Uniform Series
97(1)
Arithmetic Gradient
98(7)
Derivation of Arithmetic Gradient Factors
99(6)
Geometric Gradient
105(4)
Nominal and Effective Interest
109(6)
Continuous Compounding
115(7)
Single Payment Interest Factors: Continuous Compounding
116(2)
Uniform Payment Series: Continuous Compounding at Nominal Rate per Period
118(2)
Continuous Uniform Cash Flow (One Period) with Continuous Compounding at Nominal Interest Rate r
120(2)
Spreadsheets for Economic Analysis
122(4)
Spreadsheet Annuity Functions
122(1)
Spreadsheet Block Functions
123(1)
Using Spreadsheets for Basic Graphing
124(2)
Summary
126(3)
Problems
129(15)
Present Worth Analysis
Assumptions in Solving Economic Analysis Problems
144(2)
End-of-Year Convention
144(1)
Viewpoint of Economic Analysis Studies
145(1)
Sunk Costs
145(1)
Borrowed Money Viewpoint
145(1)
Effect of Inflation and Deflation
145(1)
Income Taxes
146(1)
Economic Criteria
146(1)
Applying Present Worth Techniques
147(15)
Useful Lives Equal the Analysis Period
147(4)
Useful Lives Different from the Analysis Period
151(3)
Infinite Analysis Period: Capitalized Cost
154(4)
Multiple Alternatives
158(4)
Spreadsheets and Present Worth
162(2)
Summary
164(1)
Problems
165(13)
Annual Cash Flow Analysis
Annual Cash Flow Calculations
178(4)
Resolving a Present Cost to an Annual Cost
178(1)
Treatment of Salvage Value
178(4)
Annual Cash Flow Analysis
182(2)
Analysis Period
184(6)
Analysis Period Equal to Alternative Lives
186(1)
Analysis Period a Common Multiple of Alternative Lives
186(1)
Analysis Period for a Continuing Requirement
186(1)
Infinite Analysis Period
187(1)
Some Other Analysis Period
188(2)
Using Spreadsheets to Analyze Loans
190(3)
Building an Amortization Schedule
190(1)
How Much to Interest? How Much to Principal?
191(1)
Finding the Balance Due on a Loan
191(1)
Pay Off Debt Sooner by Increasing Payments
192(1)
Summary
193(1)
Problems
194(10)
Rate of Return Analysis
Internal Rate of Return
204(1)
Calculating Rate of Return
205(7)
Plot of NPW versus Interest Rate i
209(3)
Rate of Return Analysis
212(8)
Present Worth Analysis
216(3)
Analysis Period
219(1)
Spreadsheets and Rate of Return Analysis
220(1)
Summary
221(1)
Problems
222(7)
Appendix 7A Difficulties in Solving for an Interest Rate
229(17)
Incremental Analysis
Graphical Solutions
246(6)
Incremental Rate of Return Analysis
252(5)
Elements in Incremental Rate of Return Analysis
257(3)
Incremental Analysis with Unlimited Alternatives
258(2)
Present Worth Analysis with Benefit--Cost Graphs
260(1)
Choosing an Analysis Method
261(1)
Spreadsheets and Incremental Analysis
262(1)
Summary
263(1)
Problems
264(8)
Other Analysis Techniques
Future Worth Analysis
272(2)
Benefit--Cost Ratio Analysis
274(6)
Continuous Alternatives
279(1)
Payback Period
280(5)
Sensitivity and Breakeven Analysis
285(4)
Graphing with Spreadsheets for Sensitivity and Breakeven Analysis
289(4)
Summary
293(1)
Problems
293(11)
Uncertainty in Future Events
Estimates and Their Use in Economic Analysis
304(2)
A Range of Estimates
306(2)
Probability
308(3)
Joint Probability Distributions
311(2)
Expected Value
313(3)
Economic Decision Trees
316(6)
Risk
322(2)
Risk Versus Return
324(2)
Simulation
326(4)
Summary
330(1)
Problems
330(8)
Depreciation
Basic Aspects of Depreciation
338(4)
Deterioration and Obsolescence
338(1)
Depreciation and Expenses
339(1)
Types of Property
340(1)
Depreciation Calculation Fundamentals
341(1)
Historical Depreciation Methods
342(5)
Straight-Line Depreciation
342(2)
Sum-of-Years'-Digits Depreciation
344(2)
Declining Balance Depreciation
346(1)
Modified Accelerated Cost Recovery System (MACRS)
347(9)
Cost Basis and Placed-in-Service Date
348(1)
Property Class and Recovery Period
348(1)
Percentage Tables
349(2)
Where Macrs Percentage Rates (rt) Come From
351(2)
Macrs Method Examples
353(2)
Comparing Macrs and Historical Methods
355(1)
Depreciation and Asset Disposal
356(3)
Unit-of-Production Depreciation
359(1)
Depletion
360(2)
Cost Depletion
360(1)
Percentage Depletion
361(1)
Spreadsheets and Depreciation
362(2)
Using VDB for Macrs
363(1)
Summary
364(1)
Problems
365(7)
Income Taxes
A Partner in the Business
372(1)
Calculation of Taxable Income
372(3)
Taxable Income of Individuals
372(1)
Classification of Business Expenditures
373(1)
Taxable Income of Business Firms
374(1)
Income Tax Rates
375(5)
Individual Tax Rates
375(2)
Corporate Tax Rates
377(2)
Combined Federal and State Income Taxes
379(1)
Selecting an Income Tax Rate for Economy Studies
380(1)
Economic Analysis Taking Income Taxes into Account
380(4)
Capital Gains and Losses for Nondepreciated Assets
384(1)
Investment Tax Credit
384(1)
Estimating the After-Tax Rate of Return
385(1)
After-Tax Cash Flows and Spreadsheets
385(1)
Summary
386(1)
Problems
387(13)
Replacement Analysis
The Replacement Problem
400(1)
Replacement Analysis Decision Maps
401(1)
What Is the Basic Comparison?
401(19)
Minimum Cost Life of the Challenger
402(2)
Use of Marginal Cost Data
404(7)
Lowest EUAC of the Defender
411(4)
No Defender Marginal Cost Data Available
415(3)
Repeatability Assumptions Not Acceptable
418(1)
A Closer Look at Future Challengers
419(1)
After-Tax Replacement Analysis
420(9)
Marginal Costs on an After-Tax Basis
420(2)
After-Tax Cash Flows for the Challenger
422(1)
After-Tax Cash Flows for the Defender
422(5)
Minimum Cost Life Problems
427(2)
Spreadsheets and Replacement Analysis
429(1)
Summary
429(2)
Problems
431(9)
Inflation and Price Change
Meaning and Effect of Inflation
440(8)
How Does Inflation Happen?
440(1)
Definitions for Considering Inflation in Engineering Economy
441(7)
Analysis in Constant Dollars Versus Then-Current Dollars
448(2)
Price Change with Indexes
450(6)
What Is a Price Index?
450(3)
Composite Versus Commodity Indexes
453(3)
How to Use Price Indexes in Engineering Economic Analysis
456(1)
Cash Flows That Inflate at Different Rates
456(2)
Different Inflation Rates per Period
458(2)
Inflation Effect on After-Tax Calculations
460(2)
Using Spreadsheets for Inflation Calculations
462(2)
Summary
464(1)
Problems
465(9)
Selection of a Minimum Attractive Rate of Return
Sources of Capital
474(1)
Money Generated from the Operation of the Firm
474(1)
External Sources of Money
474(1)
Choice of Source of Funds
474(1)
Cost of Funds
475(1)
Cost of Borrowed Money
475(1)
Cost of Capital
475(1)
Investment Opportunities
476(3)
Opportunity Cost
476(3)
Selecting a Minimum Attractive Rate of Return
479(1)
Adjusting MARR to Account for Risk and Uncertainty
479(3)
Inflation and the Cost of Borrowed Money
481(1)
Representative Values of MARR Used in Industry
482(3)
Spreadsheets, Cumulative Investments, and the Opportunity Cost of Capital
483(2)
Summary
485(1)
Problems
485(5)
Economic Analysis in the Public Sector
Investment Objective
490(2)
Viewpoint for Analysis
492(1)
Selecting an Interest Rate
493(3)
No Time-Value-of-Money Concept
494(1)
Cost of Capital Concept
494(1)
Opportunity Cost Concept
494(1)
Recommended Concept
495(1)
The Benefit--Cost Ratio
496(2)
Incremental Benefit--Cost Analysis
498(7)
Elements of the Incremental Benefit--Cost Ratio Method
499(6)
Other Effects of Public Projects
505(4)
Project Financing
505(1)
Project Duration
506(1)
Project Politics
507(2)
Summary
509(1)
Problems
510(8)
Rationing Capital Among Competing Projects
Capital Expenditure Project Proposals
518(3)
Mutually Exclusive Alternatives and Single Project Proposals
519(1)
Identifying and Rejecting Unattractive Alternatives
520(1)
Selecting the Best Alternative from Each Project Proposal
521(1)
Rationing Capital by Rate of Return
521(3)
Significance of the Cutoff Rate of Return
523(1)
Rationing Capital by Present Worth Methods
524(6)
Ranking Project Proposals
530(2)
Summary
532(1)
Problems
533(7)
Accounting and Engineering Economy
The Role of Accounting
540(1)
Accounting for Business Transactions
540(1)
The Balance Sheet
541(3)
Assets
541(1)
Liabilities
542(1)
Equity
543(1)
Financial Ratios Derived from Balance Sheet Data
543(1)
The Income Statement
544(3)
Financial Ratios Derived from Income Statement Data
546(1)
Linking the Balance Sheet, Income Statement, and Capital Transactions
546(1)
Traditional Cost Accounting
547(4)
Direct and Indirect Costs
548(1)
Indirect Cost Allocation
548(1)
Problems with Traditional Cost Accounting
549(1)
Other Problems to Watch For
550(1)
Problems
551(3)
Appendix A Introduction to Spreadsheets
554(5)
The Elements of a Spreadsheet
554(1)
Defining Variables in a Data Block
555(1)
Copy Command
555(4)
Appendix B Compound Interest Tables
559(32)
Reference 591(2)
Index 593

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