Fundamentals of Engineering Economic Analysis

Kim LaScola Needy is the head of the industrial engineering department and Twenty-First Century Professor in Engineering at the University of Arkansas. After receiving her bachelor's degree from the University of Pittsburgh, Dr. Needy worked in the field of information technology at PPG Industries and Boeing, earning a master's degree from the University of Pittsburgh and then a Ph.D. from Wichita State.
Dr. Needy's research interests include engineering management, sustainability and supply chain optimization.?Her research has led to 95 refereed publications and recognition by societies such as the Institute of Industrial Engineers, which has named her a Fellow.

Kellie Grasman is a Lecturer at Missouri University of Science and Technology. She reieved her MS, ME, and MBA at the University of Michigan Missouri Science and Technology.

CHAPTER 1 An Overview of Engineering Economic Analysis 3

Learning Objectives 4

Introduction 4

1-1 Time Value of Money 4

1-2 Engineering Economy Principles 7

1-3 Economic Justification of Capital Investments 10

Summary 15

Key Terms 16

FE-Like Problems 17

Problems 18

CHAPTER 2 Time Value of Money Calculations 23

Learning Objectives 23

Introduction 23

2-1 Cash Flow Diagrams 24

2-2 Single Cash Flows 26

2-3 Multiple Cash Flows 35

2-4 Compounding Frequency 55

Summary 62

Key Terms 66

FE-Like Problems 67

Problems 69

CHAPTER 3 Equivalence, Loans, and Bonds 93

Learning Objectives 93

Introduction 93

3-1 Equivalence 94

3-2 Interest Payments and Principal Payments 100

3-3 Bond Investments 106

3-4 Variable Interest Rates 110

3-5 Annual Percentage Rate 111

Summary 113

Key Terms 114

FE-Like Problems 114

Problems 116

CHAPTER 4 Present Worth 125

Learning Objectives 125

Introduction 126

4-1 Comparing Alternatives 126

4-2 Present Worth Calculations 130

4-3 Benefit-Cost Analysis 137

4-4 Discounted Payback Period 144

4-5 Capitalized Worth 152

Summary 157

Key Terms 159

FE-Like Problems 159

Problems 162

CHAPTER 5 Annual Worth and Future Worth 179

Learning Objectives 179

Introduction 179

5-1 Annual Worth 180

5-2 Future Worth 185

Summary 194

Key Terms 194

FE-Like Problems 195

Problems 196

CHAPTER 6 Rate of Return 213

Learning Objectives 213

Introduction 214

6-1 Internal Rate of Return Calculations 215

6-2 External Rate of Return Calculations 224

Summary 231

Key Terms 232

FE-Like Problems 232

Problems 235

CHAPTER 7 Replacement Analysis 257

Learning Objectives 258

Introduction 258

7-1 Fundamentals of Replacement Analysis 258

7-2 Cash Flow and Opportunity Cost Approaches 261

7-3 Optimum Replacement Interval 264

Summary 268

Key Terms 269

FE-Like Problems 269

Problems 271

CHAPTER 8 Depreciation 285

Learning Objectives 286

Introduction 286

8-1 The Role of Depreciation in Economic Analysis 287

8-2 Language of Depreciation 288

8-3 Straight-Line and Declining Balance Depreciation Methods 289

8-4 Modified Accelerated Cost Recovery System (MACRS) 296

Summary 301

Key Terms 303

FE-Like Problems 303

Problems 305

CHAPTER 9 Income Taxes 317

Learning Objectives 317

Introduction 317

9-1 Corporate Income Tax Rates 319

9-2 After-Tax Analysis Using Retained Earnings (No Borrowing) 322

9-3 After-Tax Analysis Using Borrowed Capital 330

9-4 Leasing versus Purchasing Equipment 336

Summary 338

Key Terms 340

FE-Like Problems 340

Problems 342

CHAPTER 10 Inflation 359

Learning Objectives 359

Introduction 360

10-1 The Meaning and Measure of Inflation 360

10-2 Before-Tax Analysis 364

10-3 After-Tax Analysis 367

10-4 After-Tax Analysis with Borrowed Capital 369

Summary 373

Key Terms 375

FE-Like Problems 375

Problems 377

CHAPTER 11 Break-Even, Sensitivity, and Risk Analysis 391

Learning Objectives 391

Introduction 392

11-1 Break-Even Analysis 393

11-2 Sensitivity Analysis 398

11-3 Risk Analysis 405

Summary 418

Key Terms 419

FE-Like Problems 419

Problems 421

CHAPTER 12 Capital Budgeting 437

Learning Objectives 438

Introduction 438

12-1 The Classical Capital Budgeting Problem 438

12-2 Capital Budgeting Problem with Indivisible Investments 440

12-3 Capital Budgeting Problem with Divisible Investments 446

12-4 Practical Considerations in Capital Budgeting 449

Summary 450

Key Terms 451

FE-Like Problems 451

Problems 453

APPENDIX A

a Single Sums, Uniform Series, and Gradient Series Interest Factors 471

b Geometric Series Present Worth Interest Factors 496

c Geometric Series Future Worth Interest Factors 501

APPENDIX B

Obtaining and Estimating Cash Flows 507

B-1 Introduction 506

B-2 Cost Terminology 508

B-3 Cost Estimation 530

B-4 General Accounting Principles 537

B-5 Cost Accounting Principles 550

Summary 561

FE-Like Problems 562

Problems 563

ANSWERS TO SELECTED EVEN NUMBERED PROBLEMS 577

INDEX 599

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