William G. Sullivan, Virginia Polytechnic Institute and State University
Elin M Wicks, Abacus Accounting, LLC
C. Patrick Koelling, Virginia Polytechnic Institute and State University
C Patrick Koelling, Virginia Polytechnic Institute and State University
©2009 | Pearson
| Format | Cloth | |
| ISBN-13: | 9780136142973 | |
| Online purchase price | $170.00 | |
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For undergraduate, introductory courses in Engineering Economics.
Used by engineering students worldwide, this best-selling text provides a sound understanding of the principles, basic concepts, and methodology of engineering economy. Built upon the rich and time-tested teaching materials of earlier editions, it is extensively revised and updated to reflect current trends and issues, with an emphasis on the economics of engineering design throughout. It provides one of the most complete and up-to-date studies of this vitally important field.
Preface is available for download in PDF format.
This material is protected under all copyright laws, as they currently exist. No portion of this material may be reproduced, in any form or by any means, without permission in writing from the publisher.
• Case studies with end-of-chapter questions encourage writing and critical thinking.
• TestGen testbank consists of well-crafted assessment questions which are representative of problems found throughout the textbook. Professors can regenerate algorithmically-generated variables within each problem to offer students a virtually unlimited number of paper or online assessments. Additionally, instructors can view, select, and edit testbank questions or create their own questions. To learn more about TestGen, please visit: http://www.pearsonhighered.com/testgen
• Fundamentals of Engineering Exam multiple-choice questions appear at the end of each chapter.
• Spreadsheets are integrated throughout the text. In particular, many examples include handworked and computer solutions (with spreadsheets) so that students can see both techniques side by side. There are new end-of-chapter spreadsheet problems as well, and spreadsheet templates.
• A brief basic review of simple accounting principles is included.
• Cost estimating is further emphasized in the text.
• An expanded treatment of the economic aspects of engineering design is featured.
• Economic value is explained in terms of a project's after-tax cash flows. This provides students with information regarding a new approach to measuring profitability.
• Material on the cost of capital explains the cost of equity and debt capital as well as the weighted average cost of capital and its relationship to rate of return concepts. This enables students to understand how engineering projects add economic value to a company.
• Real-world engineering economy analysis methodology helps students develop proficiency with methodology and processes for making rational decisions in situations likely to be encountered in professional practice.
• Case studies demonstrate the integrated application of the principles, basic concepts, and methodology used by engineers in typical, real-world situations. This allows students to see how concepts are applied in the real world.
• Cost estimating, design economics, and electronic spreadsheets provide students with comprehensive, thorough coverage of essential skills and concepts behind engineering economy.
• The theoretical and practical aspects of selecting among capital investments are examined, teaching students to select the most profitable projects to benefit a company's bottom line.
• Internet-accessible electronic spreadsheets provide approximately 50 basic templates for all major topics in the text, and summarize formulas and key concepts. These give students a ready source of information for quick reference and review, eliminating the need to create basic spreadsheets, thereby saving time.
• A multitude of examples help students to more readily understand concepts and reinforce learning.
• A comprehensive instructor's manual is available to adopting professors.
• Fifty percent of end-of-chapter problems are new or revised
• TestGen testbank consists of well-crafted assessment questions which are representative of problems found throughout the textbook. Professors can regenerate algorithmically-generated variables within each problem to offer students a virtually unlimited number of paper or online assessments. Additionally, instructors can view, select, and edit testbank questions or create their own questions. To learn more about TestGen, please visit: http://www.pearsonhighered.com/testgen
• Chapter openers with related photographs are inviting to instructors and students.
• Most end-of-chapter problems feature an instructive/informative nature.
• The authors use friendly, “down home” language to encourage students to read the book.
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
2-A-1 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
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 AnnualWorth 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
5-A-1 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 Analysis 390
9.3 Factors that Must be Considered
in Replacement Studies 391
9.4 Typical 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
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 TheWeighted 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
Appendices
A Using Excel to Solve Engineering Economy
Problems 000
B Abbreviations and Notation 000
C Interest and Annuity Tables for Discrete
Compounding 000
D Interest and Annuity Tables for Continuous
Compounding 000
E Standard Normal Distribution 000
F Selected References 000
G Answers to Selected Problems 000
Index 000
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