Level 1: This Is How It All Starts

Chapter 1: Foundations of Engineering Economy

1.1 Why Engineering Economy Is Important to Engineers (and other professionals)
1.2 Role of Engineering Economy in Decision Making
1.3 Performing an Engineering Economy Study
1.4 Interest Rate and Rate of Return
1.5 Equivalence
1.6 Simple and Compound Interest
1.7 Nomenclature and its Meaning
1.8 Minimum Attractive Rate of Return
1.9 Cash Flows: Their Estimation and Diagramming
1.10 Rule of 72: Estimating Doubling Time and Interest Rate

Additional Examples
Chapter Summary
Extended Exercise: Effects of Compound Interest
Problems
Case Study: Alternatives for Producing Refrigerator Shells

Chapter 2: Engineering Economy Factors: How Time and Interest Affect Money

2.1 Single-Payment Factors (F/P and P/F)
2.2 Uniform-Series Present-Worth Factor and Capital-Recovery Factor (P/A and A/P)
2.3 Sinking-Fund Factor and Uniform-Series Compound-Amount Factor (A/F and F/A)
2.4 Interpolation in Interest Tables
2.5 Arithmetic Gradient Factors (P/G and A/G)
2.6 Geometric Gradient Series Factors
2.7 Determination of Unknown Interest Rate
2.8 Calculation of Unknown Number of Years
2.9 Spreadsheet Application

Chapter Summary
Extended Exercise: What a Difference the Years and Compound Interest Can Make
Problems

Chapter 3: Combining Factors

3.1 Calculations for Uniform Series That Are Shifted
3.2 Calculations Involving Uniform-Series and Randomly Placed Single Amounts (includes spreadsheet application)
3.3 Calculations for Shifted Gradients
3.4 Shifted Decreasing Arithmetic Gradients

Additional Examples
Chapter Summary
Extended Exercise: Preserving Land for Public Use
Problems

Chapter 4: Nominal and Effective Interest Rates

4.1 Nominal and Effective Interest Rate Statements
4.2 Effective Annual Interest Rates
4.3 Effective Interest Rates for Any Time Period
4.4 Equivalence Relations: Comparing Payment Period and Compounding Period Lengths (PP vs. CP)
4.5 Equivalence Relations: Single Amounts with PP > CP
4.6 Equivalence Relations: Series with PP > CP
4.7 Equivalence Relations: Single Amounts and Series with PP
4.8 Effective Interest Rate for Continuous Compounding
4.9 Interest Rates that Vary Over Time

Chapter Summary
Case Study: Financing a Home
Problems

Level Two: Tools for Evaluating Alternatives

Chapter 5: Present-Worth Analysis

5.1 Formulating Mutually-Exclusive Alternatives
5.2 Present-Worth Analysis of Equal-Life Alternatives
5.3 Present-Worth Analysis of Different-Life Alternatives
5.4 Future Worth Analysis
5.5 Capitalized-Cost Calculation and Analysis
5.6 Payback Period Analysis
5.7 Life-Cycle Cost
5.8 Present Worth of Bonds
5.9 Spreadsheet Applications--PW Analysis and Payback Period

Chapter Summary
Extended Exercise
Problems
Case Study

Chapter 6: Annual Worth Analysis

6.1 Advantages and Uses of Annual Worth (AW) Analysis
6.2 Calculation of Capital Recovery and AW Values
6.3 Evaluating Alternatives by Annual Worth Analysis
6.4 AW of a Permanent Investment

Chapter Summary
Extended Exercise: The Changing Scene of an Annual Worth Analysis
Problems
Case Study

Chapter 7: Rate-of-Return Analysis: Single Alternative

7.1 Interpretation of a Return Value
7.2 Rate-of-Return Calculation using a PW or AW Equation
7.3 Cautions When Using the ROR Method
7.4 Multiple Rate of Return Values
7.5 Composite Rate of Return: Removing Multiple i* Values
7.6 Rate of Return of a Bond Investment

Chapter Summary
Extended Exercise
Problems
Case Study

Chapter 8: Rate-of-Return Analysis: Multiple Alternatives

8.1 Why Incremental Investment Analysis Is Important
8.2 Calculation of Incremental Cash Flows for ROR Analysis
8.3 Interpretation of Rate of Return on Extra Investment
8.4 Rate of Return Evaluation using PW: Incremental and Breakeven
8.5 Rate of Return Evaluation using AW
8.6 ROR Analysis of Multiple Mutually Exclusive Alternatives
8.7 Spreadsheet Applications

Chapter Summary
Case Study
Problems

Chapter 9: Benefit/Cost Analysis and Public Sector Economics

9.1 Public Sector Projects
9.2 Benefit/Cost Analysis of a Single Project
9.3 Alternative Selection using Incremental B/C Analysis
9.4 Incremental B/C Analysis of Multiple, Mutually Exclusive Alternatives

Chapter Summary
Problems
Case Study: Freeway Lighting

Chapter 10: Making Choices: the Method, MARR, and Multiple Attributes

10.1 Comparing Mutually Exclusive Alternatives by Different Evaluation Methods
10.2 MARR Relative to the Cost of Capital
10.3 Debt-Equity Mix and Weighted Average Cost of Capital
10.4 Determination of the Cost of Debt Capital
10.5 Determination of the Cost of Equity Capital and the MARR
10.6 Effect of Debt-Equity Mix on Investment Risk
10.7 Multiple Attribute Analysis: Identification and Importance of Each Attribute
10.8 Multiple Attribute Evaluation Measure

Chapter Summary
Problems
Case Study: Which Way to Go? Debt or Equity Financing?

Level Three: Making Decisions on Real-World Projects


Chapter 11: Replacement and Retention Decisions

11.1 Basics of the Replacement Study
11.2 Economic Service Life
11.3 Performing a Replacement Study
11.4 Additional Considerations in a Replacement Study
11.5 Replacement Study over a Specified Study Period

Chapter Summary
Problems
Case Study: Replacement Analysis for Quarry Equipment

Chapter 12: Selection from Independent Projects

12.1 An Overview of Capital Rationing Among Projects
12.2 Capital Rationing Using PW Analysis of Equal-Life Projects
12.3 Capital Rationing Using PW Analysis of Unequal-Life Projects
12.4 Capital Budgeting Problem Formulation Using Linear Programming

Chapter Summary
Problems
Case Study: Lifelong Engineering Education in a Web Environment

Chapter 13: Breakeven Analysis

13.1 Breakeven Analysis for a Single Project
13.2 Breakeven Analysis between Two Alternatives
13.3 Spreadsheet Applications: Using Excel’s Solver for Breakeven Analysis

Chapter Summary
Problems
Case Study

Level Four: Rounding Out the Study


Chapter 14: Effects of Inflation

14.1 Understanding the Impact of Inflation
14.2 Present Worth Calculations with Inflation Considered
14.3 Future Worth Calculations with Inflation Considered
14.4 Capital-Recovery Calculations with Inflation Considered

Chapter Summary
Problems
Case Study

Chapter 15: Cost Estimation and Indirect Cost Allocation

15.1 Understanding How Cost Estimation Is Accomplished
15.2 Cost Indexes
15.3 Cost Estimating Relationships: Cost-Capacity Equations
15.4 Cost Estimating Relationships: Factor Method
15.5 Traditional Indirect Cost Rates and Allocation
15.6 Activity-Based Costing (ABC) for Indirect Costs

Chapter Summary
Problems
Case Study: Total Cost Estimates for Optimizing Coagulant Dosage
Case Study: Indirect Cost Comparison of a Medical Equipment Sterilization Unit

Chapter 16: Depreciation Methods

16.1 Depreciation Terminology
16.2 Straight-Line (SL) Depreciation
16.3 Declining Balance (DB) and Double-Declining Balance (DDB) Depreciation
16.4 Modified Accelerated Cost Recovery System (MACRS)
16.5 Determining the MACRS Recovery Period
16.6 Depletion Methods

Chapter Summary
Problems
Chapter Appendix:

16A.1 Sum-of-Year-Digits (SYD) Depreciation
16A.2 Switching Between Depreciation Methods
16A.3 Determination of MACRS Rates

Appendix Problems

Chapter 17: After-Tax Economic Analysis

17.1Income Tax Terminology and Relations for Corporations (and Individuals)
17.2 Before Tax and After Tax Cash Flow
17.3 Effect on Taxes of Different Depreciation Models and Recovery Periods
17.4 Depreciation Recapture and Capital Gains (Losses)
17.5 After-Tax PW, AW, and ROR Evaluation
17.6 Spreadsheet Applications: After-Tax, Incremental ROR Analysis
17.7 After-Tax Replacement Study
17.8 After-Tax Value Added Analysis

Chapter Summary
Problems
Case Study

Chapter 18: Formalized Sensitivity Analysis and Expected Value Decisions

18.1 Determining Sensitivity to Parameter Evaluation
18.2 Formalized Sensitivity Analysis Using Three Estimates
18.3 Economic Variability and the Expected Value
18.4 Expected-Value Computations for Alternatives
18.5 Staged Evaluation of Alternatives Using a Decision Tree

Chapter Summary
Problems
Case Study: Sensitivity Analysis of Public Sector Projects--Supply Plans

Chapter 19: More on Variation and Decision Making Under Risk

19.1 Interpretation of Certainty, Risk, and Uncertainty
19.2 Elements Important to Decision Making Under Risk
19.3 Random Samples
19.4 Expected Value and Standard Deviation
19.5 Monte Carlo Sampling and Simulation Analysis
19.6 Multiple-Criteria Evaluation

Chapter Summary
Problems
Case Study

Appendix A: Basics of Using Microsoft Excel
Appendix B: Basics of Accounting Reports and Business Ratios
Appendix C: Final Answers to Selected End-of-Chapter Problems
Appendix D: Interest Factor Tables

Index