PART Ⅰ Fundamentals of Engineering Economy 1
CHAPTER 1 Introduction to Engineering Economy 1
1.1 Introduction 2
1.2 The Principles of Engineering Economy 3
1.3 Engineering Economy and the Design Process 6
1.4 Using Spreadsheets in Engineering Economic Analysis 15
1.5 Summary 15
CHAPTER 2 Cost Concepts and Design Economics 19
2.1 Cost Terminology 20
2.2 The General Economic Environment 27
2.3 Cost-Driven Design Optimization 37
2.4 Present Economy Studies 42
2.5 Case Study—The Economics of Daytime Running Lights 51
2.6 Summary 53
Appendix 2-A Accounting Fundamentals 62
CHAPTER 3 Cost-Estimation Techniques 71
3.1 Introduction 72
3.2 An Integrated Approach 74
3.3 Selected Estimating Techniques（Models） 82
3.4 Parametric Cost Estimating 87
3.5 Cost Estimation in the Design Process 98
3.6 Case Study—Demanufacturing of Computers 106
3.7 Summary 108
CHAPTER 4 The Time Value of Money 114
4.1 Introduction 115
4.2 Simple Interest 116
4.3 Compound Interest 117
4.4 The Concept of Equivalence 117
4.5 Notation and Cash-Flow Diagrams and Tables 120
4.6 Relating Present and Future Equivalent Values of Single Cash Flows 124
4.7 Relating a Uniform Series（Annuity） to Its Present and Future Equivalent Values 130
4.8 Summary of Interest Formulas and Relationships for Discrete Compounding 141
4.9 Deferred Annuities（Uniform Series） 142
4.10 Equivalence Calculations Involving Multiple Interest Formulas 144
4.11 Uniform（Arithmetic） Gradient of Cash Flows 150
4.12 Geometric Sequences of Cash Flows 156
4.13 Interest Rates that Vary with Time 161
4.14 Nominal and Effective Interest Rates 163
4.15 Compounding More Often than Once per Year 165
4.16 Interest Formulas for Continuous Compounding and Discrete Cash Flows 168
4.17 Case Study—Understanding Economic"Equivalence" 171
4.18 Summary 174
PART Ⅱ Engineering Economy in Action 190
CHAPTER 5 Evaluating a Single Project 190
5.1 Introduction 191
5.2 Determining the Minimum Attractive Rate of Return（MARR） 192
5.3 The Present Worth Method 192
5.4 The Future Worth Method 201
5.5 The Annual Worth Method 202
5.6 The Internal Rate of Return Method 206
5.7 The External Rate of Return Method 217
5.8 The Payback（Payout） Period Method 220
5.9 Case Study—A Proposed Capital Investment to Improve Process Yield 222
5.10 Summary 223
Appendix 5-A The Multiple Rate of Return Problem with the IRR Method 234
CHAPTER 6 Comparison and Selection among Alternatives 238
6.1 Introduction 239
6.2 Basic Concepts for Comparing Alternatives 239
6.3 The Study（Analysis） Period 243
6.4 Useful Lives Are Equal to the Study Period 245
6.5 Useful Lives Are Unequal among the Alternatives 264
6.6 Personal Finances 276
6.7 Case Study—Ned and Larry’s Ice Cream Company 280
6.8 Postevaluation of Results 283
6.9 Summary 283
CHAPTER 7 Depreciation and Income Taxes 300
7.1 Introduction 301
7.2 Depreciation Concepts and Terminology 301
7.3 The Classical（Historical） Depreciation Methods 304
7.4 The Modified Accelerated Cost Recovery System 309
7.5 A Comprehensive Depreciation Example 316
7.6 Introduction to Income Taxes 320
7.7 The Effective（Marginal） Corporate Income Tax Rate 323
7.8 Gain（Loss） on the Disposal of an Asset 326
7.9 General Procedure for Making After-Tax Economic Analyses 327
7.10 Illustration of Computations of ATCFs 331
7.11 Economic Value Added 343
7.12 Summary 345
CHAPTER 8 Price Changes and Exchange Rates 356
8.1 Introduction 357
8.2 Terminology and Basic Concepts 358
8.3 Fixed and Responsive Annuities 364
8.4 Spreadsheet Application 369
8.5 Foreign Exchange Rates and Purchasing Power Concepts 371
8.6 Case Study—Selecting Electric Motors to Power an Assembly Line 376
8.7 Summary 379
CHAPTER 9 Replacement Analysis 389
9.1 Introduction 390
9.2 Reasons for Replacement Ana？ys？s 390
9.3 Factors that Must Be Considered in Replacement Studies 391
9.4 Typ？al Replacement Problems 394
9.5 Determining the Economic Life of a New Asset（Challenger） 397
9.6 Determining the Economic Life of a Defender 401
9.7 Comparisons in which the Defender’s Useful Life Differs from that of the Challenger 404
9.8 Retirement without Replacement（Abandonment） 407
9.9 After-Tax Replacement Studies 408
9.10 Case Study—Replacement of a Hospital’s Emergency Electrical Supply System 418
9.11 Summary 421
PART Ⅲ Additional Topics in Engineering Economy 431
CHAPTER 10 Evaluating Projects with the Benefit-Cost Ratio Method 431
10.1 Introduction 432
10.2 Perspective and Terminology for Analyzing Public Projects 433
10.3 Self-Liquidating Projects 434
10.4 Multiple-Purpose Projects 434
10.5 Difficulties in Evaluating Public-Sector Projects 437
10.6 What Interest Rate Should Be Used for Public Projects？ 438
10.7 The Benefit-Cost Ratio Method 440
10.8 Evaluating Independent Projects by B-C Ratios 446
10.9 Comparison of Mutually Exclusive Projects by B-C Ratios 448
10.10 Criticisms and Shortcomings of the Benefit-Cost Ratio Method 453
10.11 Case Study—Improving a Railroad Crossing 455
10.12 Summary 457
CHAPTER 11 Breakeven and Sensitivity Analysis 465
11.1 Introduction 466
11.2 Breakeven Analysis 466
11.3 Sensitivity Analysis 473
11.4 Multiple Factor Sensitivity Analysis 479
11.5 Case Study—Analysis of a Business Venture 483
11.6 Summary 486
CHAPTER 12 Probabilistic Risk Analysis 495
12.1 Introduction 496
12.2 Sources of Uncertainty 497
12.3 The Distribution of Random Variables 497
12.4 Evaluation of Projects with Discrete Random Variables 501
12.5 Evaluation of Projects with Continuous Random Variables 510
12.6 Evaluation of Uncertainty by Monte Carlo Simulation 515
12.7 Performing Monte Carlo Simulation with a Computer 519
12.8 Decision Trees 523
12.9 Real Options Analysis 532
12.10 Case Study—The Oils Well That Ends Well Company 535
12.11 Summary 539
CHAPTER 13 The Capital Budgeting Process 548
13.1 Introduction 549
13.2 Debt Capital 551
13.3 Equity Capital 552
13.4 The Weighted Average Cost of Capital（WACC） 555
13.5 Project Selection 559
13.6 Postmortem Review 563
13.7 Budgeting of Capital Investments and Management Perspective 564
13.8 Leasing Decisions 565
13.9 Capital Allocation 567
13.10 Case Study—Financing an Automobile 575
13.11 Summary 578
CHAPTER 14 Decision Making Considering Multiattributes 581
14.1 Introduction 582
14.2 Examples of Multiattribute Decisions 582
14.3 Choice of Attributes 584
14.4 Selection of a Measurement Scale 584
14.5 Dimensionality of the Problem 585
14.6 Noncompensatory Models 585
14.7 Compensatory Models 590
14.8 Summary 598
PART Ⅳ Appendices 604
A Using Excel to Solve Engineering Economy Problems 604
B Abbreviations and Notation 621
C Interest and Annuity Tables for Discrete Compounding 625
D Interest and Annuity Tables for Continuous Compounding 644
E Standard Normal Distribution 648
F Selected References 651
G Answers to Selected Problems 654
Index 659