1. Understanding Money and Its Management
1.1. The Rational Decision-Making Process
1.1.1. How Do We Make Typical Personal Decisions?
1.2. How Do We Approach an Engineering Design Problem?
1.3. What Makes Economic Decisions Differ from Other Design Decisions?
1.2. The Engineer's Role in Business
1.2.1. Making Capital-Expenditure Decisions
1.2.2. Large-Scale Engineering Economic Decisions
1.2.3. Impact of Engineering Projects on Financial Statements
1.3. Types of Strategic Engineering Economic Decisions
1.4. Fundamental Principles in Engineering Economics
1.5. Summary
2. Interest: The Cost of Money
2.1. The Time Value of Money
2.2. Elements of Transactions Involving Interest
2.3. Methods of Calculating Interest
2.3.1. Definition and Simple Calculations
2.3.2. Equivalence Calculations Require a Common Time Basis for Comparison
2.3.3. lnterest Formulas for Single Cash Flows
2.1. Compound-Amount Factor
2.2. Present-Worth Factor
2.3. Solving for Time and Interest Rates
2.4. Uneven-Payment Series
2.5. Equal-Payment Series
2.5.1. Compound-Amount Factor: Find F, Given A, i, and N
2.5.2. Sinking-Fund Factor: Find A, Given 5 i, and N
2.5.3. Capital-Recovery Factor (Annuity Factor): Find A, Given P
2.5.4. Present-Worth Factor: Find P, Given A, i, and N
2.5. Present Value of Perpetuities
2.6. Dealing with Gradient Series
2.6.1. Handling Linear Gradient Series
2.6.2. Handling Geometric Gradient Series
2.7. Composite Cash Flows
2.8. Summary Problems
3. Market Interest Rates
3.1. Nominal Interest Rates
3.2. Annual Effective Yields
3.2.1. Calculating Effective Interest Rates Based on Payment Periods
3.3. Equivalence Calculations with Effective Interest Rates
3.3.1. Compounding Period Equal to Payment Period
3.3.2. Compounding Occurs at a Different Rate than that at which Payments Are Made
3.1. Borrowing with Credit Cards
3.2. Commercial Loans-Calculating Principal and lnterest Payments
3.3. Comparing Different Financing Options
3.4. Summary Problems
4. Measure of Inflation
4.1. Consumer Price Index
4.2. Producer Price Index
4.3. Average Inflation Rate
4.4. General lnflation Rate versus Specific Inflation Rate
4.2. Actual versus Constant Dollars
4.2.1. Conversion from Constant to Actual Dollars
4.2.2. Conversion from Actual to Constant Dollars
4.3. Equivalence Calculations under Inflation
4.3.1. Market and Inflation-Free Interest Rates
4.3.2. Constant-Dollar Analysis
4.3.3. Actual-Dollar Analysis
4.3.4. Mixed-Dollar Analysis
4.4. Summary Problems
5. Evaluating Business and Engineering Assets
5.1. Loan versus Project Cash Flows
5.2. Initial Project Screening Methods
5.2.1. Benefits and Flaws of Payback Screening
5.2.2. Discounted-Payback Period
5.3. Present-Worth Analysis
5.3.1. Net-Present-Worth Criterion
5.3.2. Guidelines for Selecting a MARR
5.3.3. Meaning of Net Present Worth
5.3.4. Capitalized-Equivalent Method
5.4. Methods to Compare Mutually Exclusive Alternatives
5.4.1. Doing Nothing Is a Decision Option
5.4.2. Service Projects versus Revenue Projects
5.4.3. Analysis Period Equals Project Lives
5.4.4. Analysis Period Differs from Project Lives
5.5. Summary Problems
6. Annual Equivalent Worth Criterion
6.1. Benefits of AE Analysis
6.2. Capital Costs versus Operating Costs
6.2. Applying Annual-Worth Analysis
6.2.1. Unit-Profit or Unit-Cost Calculation
6.2.2. Make-or-Buy Decision
6.3. Comparing Mutually Exclusive Projects
6.3.1. Analysis Period Equals Project Lives
6.3.2. Analysis Period Differs from Projects' Lives
6.4. Summary Problems
7. Rate of Return
7.1. Return on Investment
7.2. Return on Invested Capital
7.2. Methods for Finding Rate of Return
7.2.1. Simple versus Nonsimple Investments
7.3. Internal-Rate-of-Return Criterion
7.3.1. Relationship to the PW Analysis
7.3.2. Decision Rule for Simple Investments
7.3.3. Decision Rule for Nonsimple Investments
7.4. Incremental Analysis for Comparing Mutually Exclusive Alternatives
7.4.1. Flaws in Project Ranking by IRR
7.4.2. Incremental-Investment Analysis
7.4.3. Handling Unequal Service Lives
7.5. Summary Problems
7A.1. Net-Investment Test
7A.2. The Need for an External Interest Rate
7A.3. Calculation of Return on Invested Capital for Mixed Investments
8. Development of Project Cash Flows
8.3. Useful Life and Salvage Value
8.4. Depreciation Methods: Book and Tax Depreciation
8.4.1. Book Depreciation Methods
8.1. Straight-Line Method
8.2. Declining-Balance Method
8.3. Units-of-Production Method
8.3. Tax Depreciation Methods
8.3.1. MACRS Recovery Periods
8.3.2. MACRS Depreciation: Personal Property
8.3.3. MACRS Depreciation: Real Property
8.4. How to Determine "Accounting Profit"
8.4.1. Treatment of Depreciation Expenses
8.4.2. Calculation of Net Income
8.4.3. Operating Cash Flow versus Net Incomc
8.1. Income Taxes on Operating Income
8.2. Gain Taxes on Asset Disposals
8.3. Summary Problems
9. Understanding Project Cost Elements
9.1. Classifying Costs for Manufacturing Environmcnts
9.2. Classifying Costs for Financial Statement$
9.3. Classifying Costs for Predicting Cost Behavior
9.2. Why D o We Need to Use Cash Flow in Economic Analysis?
9.3. Income-Tax Rate to Be Used in Economic Analysis
13.3. Using Ratios to Make Business Decisions
13.3.1. Debt Management Analysis
13.3.3. Asset Management Analysis
13.3.5. Market-Value Analysis
13.3.6. Limitations of Financial Ratios in Business Decisions
13.3.7. Summary Problems
