Principles of Engineering Economic Analysis

Preface. 1. Engineering Economic Analysis. 1.1 Introduction. 1.2 Time Value of Money. 1.3 Ten Principles of Engineering Economic Analysis. 1.4 Systematic Economic Analysis Technique (SEAT). 1.5 When the Time Value of Money Need Not Be Considered. 1.6 Summary. 2. Time Value Of Money. 2.1 Introduction. 2.2 Cash Flow Diagrams. 2.3 Simple Interest Calculations. 2.4 Compound Interest Calculations. 2.5 Multiple Compounding Periods in a Year. 2.6 When Compounding and Cash Flow Frequencies Differ. 2.7 Special and Limiting Cases of Time Value of Money Factors. 2.7 Summary. Appendix 2.A Continuous Compound Interest Calculations (brief treatment). 2.A.1 Discrete Cash Flows. 2.A.2 Continuous Cash Flows. 3. Borrowing, Lending, And Investing. 3.1 Introduction. 3.2 Four Methods of Repaying Loans. 3.3 Which Repayment Method Is Best for the Borrower? 3.4 Real Estate Investment. 3.5 Interest Payments and Principal Payments. 3.6 Retirement Planning. 3.7 Equivalence and Indifference. 3.8 Purchasing and Selling Bonds. 3.9 Variable Interest Rates. 3.10 Summary. 4. Establishing The Planning Horizon And The Minimum Attractive Rate Of Return. 4.1 Introduction. 4.2 Choosing the Planning Horizon. 4.3 Specifying the Minimum Attractive Rate of Return. 4.4 Summary. 5. Present Worth Analysis. 5.1 Introduction. 5.2 Comparing Alternatives. 5.3 Present Worth: Single Alternative. 5.4 Present Worth: Multiple Alternatives. 5.5 Present Worth: "One Shot" Investments. 5.6 Discounted Payback Period: Single Alternative. 5.7 Discounted Payback Period: Multiple Alternatives. 5.8 Capitalized Worth: Single Alternative. 5.9 Capitalized Worth: Multiple Alternatives. 5.10 Summary. 6. Future Worth Analysis. 6.1 Introduction. 6.2 Future Worth: Single Alternative. 6.3 Future Worth: Multiple Alternatives. 6.4 Maximizing the Investment Portfolio. 6.5 More on Unequal Lives. 6.6 Summary. 7. Annual Worth Analysis. 7.1 Introduction. 7.2 Annual Worth: Equal Lives. 7.3 Annual Worth: Multiple Alternatives. 7.4 Least Common Multiple of Lives Assumption. 7.5 Unequal Lives Re-Visited. 7.6 Capital Recovery Cost. 7.7 Summary. 8. Rate Of Return Analysis. 8.1 Introduction. 8.2 Internal Rate of Return: Single Alternative. 8.3 Internal Rate of Return: Multiple Alternatives. 8.4 External Rate of Return: Single Alternative. 8.5 External Rate of Return: Multiple Alternatives. 8.6 Analyzing Alternatives with No Positive Cash Flows. 8.7 Summary. Appendix 8.A Modified Internal Rate of Return. 8.A.1 Single Alternative. 8.A.2 Multiple Alternatives. 9. Depreciation Methods. 9.1 Introduction. 9.2 Background on Depreciation Accounting. 9.3 Straight Line Depreciation (SLN). 9.4 Declining Balance and Double Declining Balance Depreciation (DB and DDB). 9.5 Switching from DDB to SLN with VDB. 9.6 Modified Accelerated Cost Recovery System (MACRS). 9.7 Comparison of Depreciation Methods. 9.8 Summary. Appendix 9.A Sum-of-Years-Digits Depreciation. Appendix 9.B Other Depreciation Methods. 9.B.1 Unit of Production Method. 9.B.2 Operating Day (Hour) Method. 9.B.3 Income Forecast Method. Appendix 9.C Depletion. 10. After-Tax Economic Analysis. 10.1 Introduction. 10.2 Tax Concepts. 10.3 Corporate Income Taxes. 10.4 After-Tax Cash Flow without Borrowing. 10.5 After-Tax Comparison of Alternatives. 10.6 After-Tax Cash Flows with Borrowing. 10.7 How Much Money Should a Company Borrow? 10.8 Additional Tax Considerations. 10.9 Timing of Investment versus First Year's Depreciation Charge. 10.10 International Considerations. 10.11 Summary. 11. Replacement Analysis. 11.1 Introduction. 11.2 Cash Flow Approach. 11.3 Opportunity Cost Approach. 11.4 Section 1031 Exchanges. 11.5 Optimum Replacement Interval. 11.6 Summary. 12. Inflation Effects. 12.1 Introduction. 12.2 Using Indexes to Measure Inflation. 12.3 Before-Tax Analysis in Inflationary Conditions. 12.4 After-Tax Analysis in Inflationary Conditions. 12.5 After-Tax Analysis with Inflation and Borrowed Capital. 12.6 Summary. 13. Supplementary Analysis. 13.1 Introduction. 13.2 Breakeven Analysis. 13.3 Sensitivity Analysis. 13.4 Risk Analysis. 13.5 Summary. Appendix 13.A Decision Tree Analysis. 14. Economic Analysis In The Public And Regulated Sectors. 14.1 Introduction - The Nature of Public Projects. 14.2 Build-Operate-Transfer. 14.3 Objectives in Public Project Evaluation. 14.4 Guidelines in Public Sector Evaluation. 14.5 U.S. Federal Government Guidelines. 14.6 Using SEAT in Public Sector Evaluations. 14.7 Benefit-Cost and Cost-Effectiveness Calculations. 14.8 Important Considerations in Evaluating Public Projects. 14.9 Introduction - The Revenue Requirements Method. 14.10 Definition of Terms. 14.11 Determining the Minimum Revenue Requirement. 14.12 Showing Equivalence between Revenue Requirement and ATCF Methods. 14.13 Summary. Appendix 14.A OMB Circular No. A-94, Revised Table of Contents. 15. Capital Budgeting. 15.1 Introduction. 15.2 The Classical Capital Budgeting Problem. 15.3 Unequal Investment Durations. 15.4 Capital Budgeting with Divisible Investments. 15.5 Using Excel to Solve the Capital Budgeting Problem with Divisible Investments. 15.6 Practical Considerations in Capital Budgeting. 15.7 Summary. 16. Obtaining And Estimating Cash Flows. 16.1 Introduction. 16.2 Cost Terminology. 16.3 Cost Estimation. 16.4 General Accounting Principles. 16.5 Cost Accounting Principles. 16.6 Summary. Appendixes. A. Discrete Compound Interest Tables. a. Single-Sum, Uniform Series, and Gradient Series Interest Factors. b. Geometric Series Present Worth Interest Factors. c. Geometric Series Future Worth Interest Factors. B. Continuous Compound Interest Tables. a. Single-Sum, Uniform Series, and Gradient Series Interest Factors. b. Continuous Flow Interest Factors. Answers To Even-Numbered Problems. Index.