Fundamentals of Engineering Economic Analysis

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