Published by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020. Copyright © 2012 by The McGraw-Hill Companies, Inc
ISBN-13: 978-0-07-337630-1 (alk. paper)
ISBN-10: 0-07-337630-2
MHID 0-07-337630-2
TA177.4.B58 2012
658.15—dc22
2010052297
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Daftar isi :
Chapter 1 Foundations of Engineering Economy 2
1.1 Engineering Economics: Description and Role in Decision Making 3
1.2 Performing an Engineering Economy Study 4
1.3 Professional Ethics and Economic Decisions 7
1.4 Interest Rate and Rate of Return 10
1.5 Terminology and Symbols 13
1.6 Cash Flows: Estimation and Diagramming 15
1.7 Economic Equivalence 19
1.8 Simple and Compound Interest 21
1.9 Minimum Attractive Rate of Return 25
1.10 Introduction to Spreadsheet Use 27
Chapter Summary 31
Problems 31
Additional Problems and FE Exam Review Questions 35
Case Study—Renewable Energy Sources for Electricity Generation 36
Case Study—Refrigerator Shells 37
Chapter 2 Factors: How Time and Interest Affect Money 38
PE Progressive Example—The Cement Factory Case 39
2.1 Single-Amount Factors (F P and P F ) 39
2.2 Uniform Series Present Worth Factor and Capital Recovery Factor (P A and A P) 43
2.3 Sinking Fund Factor and Uniform Series Compound Amount Factor (A F and F A) 46
2.4 Factor Values for Untabulated i or n Values 48
2.5 Arithmetic Gradient Factors (P G and A G) 50
2.6 Geometric Gradient Series Factors 58
2.7 Determining i or n for Known Cash Flow Values 61
Chapter Summary 64
Problems 64
Additional Problems and FE Exam Review Questions 69
Case Study—Time Marches On; So Does the Interest Rate 70
Chapter 3 Combining Factors and Spreadsheet Functions 72
3.1 Calculations for Uniform Series That Are Shifted 73
3.2 Calculations Involving Uniform Series and Randomly Placed Single Amounts 76
3.3 Calculations for Shifted Gradients 80
Chapter Summary 86
Problems 86
Additional Problems and FE Exam Review Questions 92
Case Study—Preserving Land for Public Use 93
Chapter 4 Nominal and Effective Interest Rates 94
PE Progressive Example—The Credit Card Offer Case 95
4.1 Nominal and Effective Interest Rate Statements 96
4.2 Effective Annual Interest Rates 99
4.3 Effective Interest Rates for Any Time Period 105
4.4 Equivalence Relations: Payment Period and Compounding Period 106
4.5 Equivalence Relations: Single Amounts with PP CP 107
4.6 Equivalence Relations: Series with PP CP 109
4.7 Equivalence Relations: Single Amounts and Series with PP CP 112
4.8 Effective Interest Rate for Continuous Compounding 114
4.9 Interest Rates That Vary over Time 116
Chapter Summary 117
Problems 118
Additional Problems and FE Exam Review Questions 122
Case Study—Is Owning a Home a Net Gain or Net Loss over Time? 124
Chapter 5 Present Worth Analysis 128
PE Progressive Example—Water for Semiconductor Manufacturing Case 129
5.1 Formulating Alternatives 129
5.2 Present Worth Analysis of Equal-Life Alternatives 131
5.3 Present Worth Analysis of Different-Life Alternatives 133
5.4 Future Worth Analysis 137
5.5 Capitalized Cost Analysis 138
Chapter Summary 142
Problems 142
Additional Problems and FE Exam Review Questions 147
Case Study—Comparing Social Security Benefi ts 149
Chapter 6 Annual Worth Analysis 150
6.1 Advantages and Uses of Annual Worth Analysis 151
6.2 Calculation of Capital Recovery and AW Values 153
6.3 Evaluating Alternatives by Annual Worth Analysis 155
6.4 AW of a Permanent Investment 157
6.5 Life-Cycle Cost Analysis 160
Chapter Summary 164
Problems 164
Additional Problems and FE Exam Review Questions 169
Case Study—The Changing Scene of an Annual Worth Analysis 171
Chapter 7 Rate of Return Analysis: One Project 172
7.1 Interpretation of a Rate of Return Value 173
7.2 Rate of Return Calculation Using a PW or AW Relation 175
7.3 Special Considerations When Using the ROR Method 179
7.4 Multiple Rate of Return Values 180
7.5 Techniques to Remove Multiple Rates of Return 184
7.6 Rate of Return of a Bond Investment 190
Chapter Summary 193
Problems 193
Additional Problems and FE Exam Review Questions 198
Case Study—Developing and Selling an Innovative Idea 200
Chapter 8 Rate of Return Analysis: Multiple Alternatives 202
8.1 Why Incremental Analysis Is Necessary 203
8.2 Calculation of Incremental Cash Flows for ROR Analysis 203
8.3 Interpretation of Rate of Return on the Extra Investment 206
8.4 Rate of Return Evaluation Using PW: Incremental and Breakeven 207
8.5 Rate of Return Evaluation Using AW 213
8.6 Incremental ROR Analysis of Multiple Alternatives 214
8.7 All-in-One Spreadsheet Analysis (Optional) 218
Chapter Summary 219
Problems 220
Additional Problems and FE Exam Review Questions 225
Case Study—ROR Analysis with Estimated Lives That Vary 226
Case Study—How a New Engineering Graduate Can Help His Father 227
Chapter 9 Benefi t/Cost Analysis and Public Sector Economics 228
PE Progressive Example—Water Treatment Facility #3 Case 229
9.1 Public Sector Projects 230
9.2 Benefi t/Cost Analysis of a Single Project 235
9.3 Alternative Selection Using Incremental B/C Analysis 238
9.4 Incremental B/C Analysis of Multiple, Mutually Exclusive Alternatives 242
9.5 Service Sector Projects and Cost-Effectiveness Analysis 246
9.6 Ethical Considerations in the Public Sector 250
Chapter Summary 251
Problems 252
Additional Problems and FE Exam Review Questions 258
Case Study—Comparing B/C Analysis and CEA of Traffi c Accident Reduction 259
Chapter 10 Project Financing and Noneconomic Attributes 266
10.1 MARR Relative to the Cost of Capital 267
10.2 Debt-Equity Mix and Weighted Average Cost of Capital 269
10.3 Determination of the Cost of Debt Capital 271
10.4 Determination of the Cost of Equity Capital and the MARR 273
10.5 Effect of Debt-Equity Mix on Investment Risk 275
10.6 Multiple Attribute Analysis: Identifi cation and Importance of Each Attribute 278
10.7 Evaluation Measure for Multiple Attributes 282
Chapter Summary 283
Problems 284
Additional Problems and FE Exam Review Questions 289
Case Study—Which Is Better—Debt or Equity Financing? 290
Chapter 11 Replacement and Retention Decisions 292
PE Progressive Example—Keep or Replace the Kiln Case 293
11.1 Basics of a Replacement Study 294
11.2 Economic Service Life 296
11.3 Performing a Replacement Study 302
11.4 Additional Considerations in a Replacement Study 306
11.5 Replacement Study over a Specifi ed Study Period 307
11.6 Replacement Value 312
Chapter Summary 312
Problems 313
Additional Problems and FE Exam Review Questions 319
Case Study—Will the Correct ESL Please Stand? 321
Chapter 12 Independent Projects with Budget Limitation 322
12.1 An Overview of Capital Rationing among Projects 323
12.2 Capital Rationing Using PW Analysis of Equal-Life Projects 325
12.3 Capital Rationing Using PW Analysis of Unequal-Life Projects 327
12.4 Capital Budgeting Problem Formulation Using Linear Programming 329
12.5 Additional Project Ranking Measures 332
Chapter Summary 334
Problems 334
Additional Problems and FE Exam Review Questions 338
Chapter 13 Breakeven and Payback Analysis 340
13.1 Breakeven Analysis for a Single Project 341
13.2 Breakeven Analysis Between Two Alternatives 345
13.3 Payback Analysis 348
13.4 More Breakeven and Payback Analysis on Spreadsheets 352
Chapter Summary 355
Problems 355
Additional Problems and FE Exam Review Questions 361
Case Study—Water Treatment Plant Process Costs 363
Chapter 14 Effects of Infl ation 366
14.1 Understanding the Impact of Infl ation 367
14.2 Present Worth Calculations Adjusted for Infl ation 369
14.3 Future Worth Calculations Adjusted for Infl ation 374
14.4 Capital Recovery Calculations Adjusted for Infl ation 377
Chapter Summary 378
Problems 379
Additional Problems and FE Exam Review Questions 384
Case Study—Infl ation versus Stock and Bond Investments 385
Chapter 15 Cost Estimation and Indirect Cost Allocation 386
15.1 Understanding How Cost Estimation Is Accomplished 387
15.2 Unit Method 390
15.3 Cost Indexes 391
15.4 Cost-Estimating Relationships: Cost-Capacity Equations 394
15.5 Cost-Estimating Relationships: Factor Method 395
15.6 Traditional Indirect Cost Rates and Allocation 397
15.7 Activity-Based Costing (ABC) for Indirect Costs 401
15.8 Making Estimates and Maintaining Ethical Practices 403
Chapter Summary 404
Problems 404
Additional Problems and FE Exam Review Questions 410
Case Study—Indirect Cost Analysis of Medical Equipment Manufacturing Costs 411
Case Study—Deceptive Acts Can Get You in Trouble 412
Chapter 16 Depreciation Methods 414
16.1 Depreciation Terminology 415
16.2 Straight Line (SL) Depreciation 418
16.3 Declining Balance (DB) and Double Declining Balance (DDB) Depreciation 419
16.4 Modifi ed Accelerated Cost Recovery System (MACRS) 422
16.5 Determining the MACRS Recovery Period 426
16.6 Depletion Methods 427
Chapter Summary 429
Appendix 430
16A.1 Sum-of-Years-Digits (SYD) and Unit-of-Production (UOP) Depreciation 430
16A.2 Switching between Depreciation Methods 432
16A.3 Determination of MACRS Rates 435
Problems 438
Additional Problems and FE Exam Review Questions 442
Appendix Problems 443
Chapter 17 After-Tax Economic Analysis 444
17.1 Income Tax Terminology and Basic Relations 445
17.2 Calculation of Cash Flow after Taxes 448
17.3 Effect on Taxes of Different Depreciation Methods and Recovery Periods 450
17.4 Depreciation Recapture and Capital Gains (Losses) 453
17.5 After-Tax Evaluation 456
17.6 After-Tax Replacement Study 462
17.7 After-Tax Value-Added Analysis 465
17.8 After-Tax Analysis for International Projects 468
17.9 Value-Added Tax 470
Chapter Summary 472
Problems 473
Additional Problems and FE Exam Review Questions 481
Case Study—After-Tax Analysis for Business Expansion 482
Chapter 18 Sensitivity Analysis and Staged Decisions 484
18.1 Determining Sensitivity to Parameter Variation 485
18.2 Sensitivity Analysis Using Three Estimates 490
18.3 Estimate Variability and the Expected Value 491
18.4 Expected Value Computations for Alternatives 492
18.5 Staged Evaluation of Alternatives Using a Decision Tree 494
18.6 Real Options in Engineering Economics 498
Chapter Summary 503
Problems 503
Additional Problems and FE Exam Review Questions 509
Case Study—Sensitivity to the Economic Environment 510
Case Study—Sensitivity Analysis of Public Sector Projects—Water Supply Plans 511
Chapter 19 More on Variation and Decision Making under Risk 514
19.1 Interpretation of Certainty, Risk, and Uncertainty 515
19.2 Elements Important to Decision Making under Risk 518
19.3 Random Samples 523
19.4 Expected Value and Standard Deviation 526
19.5 Monte Carlo Sampling and Simulation Analysis 533
Chapter Summary 540
Problems 540
Additional Problems and FE Exam Review Questions 543
Case Study—Using Simulation and Three-Estimate Sensitivity Analysis 544
Appendix A Using Spreadsheets and Microsoft Excel© 547
A.1 Introduction to Using Excel 547
A.2 Organization (Layout) of the Spreadsheet 549
A.3 Excel Functions Important to Engineering Economy 550
A.4 Goal Seek—A Tool for Breakeven and Sensitivity Analysis 558
A.5 Solver—An Optimizing Tool for Capital Budgeting, Breakeven, and Sensitivity Analysis 559
A.6 Error Messages 560
Appendix B Basics of Accounting Reports and Business Ratios 561
B.1 The Balance Sheet 561
B.2 Income Statement and Cost of Goods Sold Statement 562
B.3 Business Ratios 563
Appendix C Code of Ethics for Engineers 566
Appendix D Alternate Methods for Equivalence Calculations 569
D.1 Using Programmable Calculators 569
D.2 Using the Summation of a Geometric Series 570
Appendix E Glossary of Concepts and Terms 573
E.1 Important Concepts and Guidelines 573
E.2 Symbols and Terms 576
Reference Materials 579
Factor Tables 581
Photo Credits 610
Index 611
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