Engineering economic analysis, 9th edition

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 Contents......Page 8 Preface......Page 18 1 Making Economic Decisions......Page 24 A SEA OF PROBLEMS......Page 25 THE ROLE OF ENGINEERING ECONOMIC ANALYSIS......Page 26 TH,E DECISION-MAKING PROCESS......Page 27 ENGINEERING DECISION MAKING FOR CURRENT COSTS......Page 36 SUMMARY......Page 39 PROBLEMS......Page 40 2 Engineering Costs and Cost Estimating......Page 48 ENGINEERING COSTS......Page 49 COST ESTIMATING......Page 59 ESTIMATING MODELS......Page 62 CASH FLOW DIAGRAMS......Page 71 SUMMARY......Page 73 PROBLEMS......Page 75 3 Interest and Equivalence......Page 82 COMPUTING CASH FLOWS......Page 83 TIME VALUE OF MONEY......Page 85 EQUIVALENCE......Page 89 SINGLE PAYMENT COMPOUND INTERESTFORMULAS......Page 94 SUMMARY......Page 102 PROBLEMS......Page 103 4 More Interest Formulas......Page 106 UNIFORM SERIESCOMPOUND INTERESTFORMULAS......Page 107 RELATIONSHIPS BETWEEN COMPOUND INTEREST FACTORS......Page 118 ARITHMETIC GRADIENT......Page 119 GEOMETRIC GRADIENT......Page 126 NOMINAL AND EFFECTIVE INTEREST......Page 130 CONTINUOUS COMPOUNDING......Page 136 SPREADSHEETS FOR ECONOMIC ANALYSIS......Page 143 SUMMARY......Page 147 PROBLEMS......Page 150 5 Present Worth Analysis......Page 164 ASSUMPTIONS IN SOLVING ECONOMIC ANALYSIS PROBLEMS......Page 165 ECONOMIC CRITERIA......Page 167 ApPLYING PRESENT WORTH TECHNIQUES......Page 168 SPREADSHEETSAND PRESENTWORTH......Page 183 SUMMARY......Page 185 PROBLEMS......Page 186 6 Annual Cash Flow Analysis......Page 198 ANNUAL CASH FLOW CALCULATIONS......Page 199 ANNUAL CASH FLOW ANALYSIS......Page 203 ANALYSIS PERIOD......Page 205 USING SPREADSHEETS TO ANALYZE LOANS......Page 211 SUMMARY......Page 214 PROBLEMS......Page 215 7 Rate of Return Analysis......Page 224 INTERNAL RATE OF RETURN......Page 225 CALCULATING RATE OF RETURN......Page 226 RATE OF RETURN ANALYSIS......Page 233 SPREADSHEETS AND RATE OF RETURN ANALYSIS......Page 241 SUMMARY......Page 242 PROBLEMS......Page 243 APPENDIX 7A Difficulties in Solvingfor an Interest Rate......Page 250 8 Incremental Analysis......Page 266 GRAPHICAL SOLUTIONS......Page 267 INCREMENTAL RATE OF RETURN ANALYSIS......Page 273 ELEMENTS IN INCREMENTAL RATE OF RETURN ANALYSIS......Page 278 PRESENT WORTH ANALYSIS WITH BENEFIT-COST GRAPHS......Page 281 CHOOSING AN ANALYSIS METHOD......Page 282 SPREADSHEETS AND INCREMENTAL ANALYSIS......Page 283 SUMMARY......Page 284 PROBLEMS......Page 285 9 Other AnalysisTechniques......Page 292 FUTURE WORTH ANALYSIS......Page 293 BENEFIT-COST RATIO ANALYSIS......Page 295 PAYBACK PERIOD......Page 301 SENSITIVITY AND BREAKEVEN ANALYSIS......Page 306 GRAPHING WITH SPREADSHEETS FOR SENSITIVITYAND BREAKEVEN ANALYSIS......Page 310 PROBLEMS......Page 314 10 Uncertainty in the Future Events......Page 324 ESTIMATES AND THEIR USE IN ECONOMIC ANALYSIS......Page 325 A RANGE OF ESTIMATES......Page 327 PROBABILITY......Page 329 JOINT PROBABILITY DISTRIBUTIONS......Page 332 EXPECTEDVALUE......Page 334 ECONOMIC DECISION TREES......Page 337 RISK......Page 343 RISK VERSUS RETURN......Page 345 SIMULATION......Page 347 PROBLEMS......Page 351 11 Depreciation......Page 358 BASIC ASPECTS OF DEPRECIATION......Page 359 HISTORICAL DEPRECIATION METHODS......Page 363 MODIFIED ACCELERATEDCOST RECOVERYSYSTEM (MACRS)......Page 368 DEPRECIAliON AND ASSET DISPOSAL......Page 377 UNIT-Of-PRODUCTION DEPRECIATION......Page 380 DEPLETION......Page 381 SPREADSHEETS AND DEPRECIATION......Page 383 SUMMARY......Page 385 PROBLEMS......Page 386 12 Income Taxes......Page 392 CALCULATION OF TAXABLEINCOME......Page 393 INCOME TAX RATES......Page 396 ECONOMIC ANALYSIS TAKING INCOME TAXES INTO ACCOUNT......Page 401 CAPITAL GAINS AND LOSSES FOR NON DEPRECIATEDASSETS......Page 405 AFTER-TAXCASH FLOWS AND SPREADSHEETS......Page 406 SUMMARY......Page 407 PROBLEMS......Page 408 13 Replacement Analysis......Page 420 THE REPLACEMENT PROBLEM......Page 421 WHAT Is THE BASICCOMPARISON?......Page 422 AFTER-TAX REPLACEMENT ANALYSIS......Page 441 SUMMARY......Page 450 PROBLEMS......Page 452 14 Inflation and Price Change......Page 460 MEANING AND EFFECTOF INFLATION......Page 461 ANALYSIS IN CONSTANT DOLLARS VERSUS THEN-CURRENT DOLLARS......Page 469 PRICECHANGE WITH INDEXES......Page 471 CASH FLOWS THAT INFLATEAT DIFFERENTRATES......Page 477 DIFFERENT INFLATION RATES PER PERIOD......Page 479 INFLATION EFFECT ON AFTER-TAX CALCULATIONS -......Page 481 USING SPREADSHEETSFOR INFLATION CALCULATIONS......Page 483 SUMMARY......Page 485 PROBLEMS......Page 486 15 Selection of a Minimum-Attractive Rate of Return......Page 494 SOURCES OF CAPITAL......Page 495 COST OF FUNDS......Page 496 INVESTMENT OPPORTUNITIES......Page 497 ADJUSTING MARR TO ACCOUNT FOR RISK AND UNCERTAINTY......Page 500 REPRESENTATIVEVALUESOF MARR USED IN INDUSTRY......Page 503 PROBLEMS......Page 506 16 Economic Analysis in the Public Sector......Page 510 INVESTMENT OBJECTIVE......Page 511 VIEWPOINT FOR ANALYSIS......Page 513 ELECTINGAN INTERESTRATE......Page 514 THE BENEFIT-COST RATIO......Page 517 INCREMENTAL BENEFIT-COST ANALYSIS......Page 519 OTHER EFFECTSOF PUBLIC PROJECTS......Page 526 SUMMARY......Page 530 PROBLEMS......Page 531 17 Rationing Capital AmongCompeting Projects......Page 538 CAPITAL EXPENDITURE PROJECT PROPOSALS......Page 539 TIONING CAPITAL BY RATE OF RETURN......Page 542 RATIONING CAPITAL BY PRESENTWORTH METHODS......Page 545 RANKING PROJECT PROPOSALS......Page 551 SUMMARY......Page 553 PROBLEMS......Page 554 18 Accounting and Engineering Economy......Page 560 THE ROLE OF ACCOUNTING......Page 561 BALANCESHEET......Page 562 THE INCOME STATEMENT......Page 565 ADDITTIONAL COST ACCOUNTING......Page 568 PROBLEMS......Page 572 Appendix A Introduction to Spreadsheets......Page 575 Appendix B Compound InterestTables......Page 580 References......Page 612 Index......Page 614 Economic Criteria......Page 620 In the immediate aftermath of the terrorist attacks of September 11, 2001, most commentators assumed that no structure, however well built, could have withstood the damage inflicted by fully fueled passenger jets traveling at top speed.