Essentials of engineering economic analysis

Compound Interest Equations (inside front cover) Economic Criteria (inside back cover) PREFACE 1. MAKING ECONOMIC DECISIONS A SEA OF PROBLEMS Simple Problems, Intermediate Problems, Complex Problems THE ROLE OF ENGINEERING ECONOMIC ANALYSIS Examples of Engineering Economic Analysis THE DECISION MAKING PROCESS Rational Decision Making: Recognize the Problem, Define the Goals, Assemble Relevant Data, Identify Feasible Alternatives, Select the Criterion, Construct a Model, Predict the Outcomes, Choose the Best Alternative, Audit the Results ENGINEERING DECISION MAKING 2. ENGINEERING COSTS AND COST ESTIMATING ENGINEERING COSTS Fixed, Variable, Marginal, and Average Costs, Sunk Costs, Opportunity Costs, Recurring and Non-recurring Costs, Incremental Costs, Cash Costs versus Book Costs, Life-cycle Costs COST ESTIMATING Types of Estimates, Difficulties in Estimation, One-of-a-Kind Estimates, Time and Effort Available, Estimator Expertise ESTIMATING MODELS Per Unit Model, Segmenting Model, Cost Indexes, Power Sizing Model, Triangulation, Improvement and the Learning Curve ESTIMATING BENEFITS CASH FLOW DIAGRAMS Categories of Cash Flows, Drawing a Cash Flow Diagram, Drawing a Cash Flow Diagram with a Spreadsheet 3. INTEREST AND EQUIVALENCE COMPUTING CASH FLOWS TIME VALUE OF MONEY SIMPLE INTEREST Repaying a Debt EQUIVALENCE Difference in Repayment Plans, Equivalence is Dependent on Interest Rate, Application of Equivalence Calculations SINGLE PAYMENT COMPOUND INTEREST FORMULAS 4. MORE INTEREST FORMULAS UNIFORM SERIES COMPOUND INTEREST FORMULAS RELATIONSHIPS BETWEEN COMPOUND INTEREST FACTORS Single Payment, Uniform Series ARITHMETIC GRADIENT Derivation of Arithmetic Gradient Factors GEOMETRIC GRADIENT NOMINAL AND EFFECTIVE INTEREST CONTINUOUS COMPOUNDING Single Payment Interest Factors, Uniform Payment Series, Continuous, Uniform Cash Flow SPREADSHEETS FOR ECONOMIC ANALYSIS Spreadsheet Annuity Functions, Spreadsheet Block Functions, Basic Graphing Using Spreadsheets 5. PRESENT WORTH ANALYSIS ECONOMIC CRITERIA APPLYING PRESENT WORTH TECHNIQUES Useful Lives Equal the Analysis Period, Net Present Worth, Useful Lives Different from the Analysis Period, Infinite Analysis Period-Capitalized Cost, Multiple Alternatives ASSUMPTIONS IN SOLVING ECONOMIC ANALYSIS PROBLEMS End-of-Year Convention, Viewpoint of Economic Analysis Studies, Sunk Costs, Borrowed Money Viewpoint, Effect of Inflation and Deflation, Income Taxes, Spreadsheets and Present Worth 6. ANNUAL CASH FLOW ANALYSIS ANNUAL CASH FLOW CALCULATIONS Resolving a Present Cost to an Annual Cost, Treatment of Salvage Value ANNUAL CASH FLOW ANALYSIS ANALYSIS PERIOD Analysis Period Equal to Alternative Lives, Analysis Period a Common Multiple of Alternative Lives, Analysis Period for a Continuing Requirement, Infinite Analysis Period, Some Other Analysis Period USING SPREADSHEETS TO ANALYZE LOANS Building an Amortization Schedule, How Much to Interest? How Much to Principal? , Finding the Balance Due on a Loan, Payoff Debt Sooner by Increasing Payments 7. RATE OF RETURN ANALYSIS INTERNAL RATE OF RETURN CALCULATING RATE OF RETURN Plot of NPW vs. Interest Rate i RATE OF RETURN ANALYSIS Analysis Period, Spreadsheets and Rate of Return Analysis 7A. DIFFICULTIES SOLVING FOR AN INTEREST RATE CONVERTING A CASH FLOW TO A MATHEMATICAL EQUATION CASH FLOW RULE OF SIGNS Zero Sign Changes, One Sign Change, Two or More Sign Changes, What the Difficulties Mean EXTERNAL INTEREST RATE Resolving Multiple Rate of Return Problems, A Further Look at the Computation of Rate of Return 8. INCREMENTAL ANALYSIS GRAPHICAL SOLUTIONS INCREMENTAL RATE OF RETURN ANALYSIS Incremental Analysis Where There Are Unlimited Alternatives PRESENT WORTH ANALYSIS WITH BENEFIT-COST GRAPHS CHOOSING AN ANALYSIS METHOD SPREADSHEETS AND INCREMENTAL ANALYSIS 9. OTHER ANALYSIS TECHNIQUES FUTURE WORTH ANALYSIS BENEFIT-COST RATIO ANALYSIS Continuous Alternatives PAYBACK PERIOD SENSITIVITY AND BREAKEVEN ANALYSIS Graphing with Spreadsheets for Sensitivity and Breakeven Analysis 10. DEPRECIATION BASIC ASPECTS OF DEPRECIATION Deterioration and Obsolescence, Depreciation and Expenses, Types of Property, Depreciation Calculation Fundamentals HISTORICAL DEPRECIATION METHODS Straight Line Depreciation, Sum-of-Years Digits Depreciation, Declining Balance Depreciation MODIFIED ACCELERATED COST RECOVERY SYSTEM Cost Basis and Placed in Service Date, Property Class and Recovery Period, Percentage Tables, Where MACRS Percentage Rates Come From, MACRS Method Examples, Comparing MACRS and Historical Methods DEPLETION AND ASSET DISPOSAL UNIT OF PRODUCTION DEPRECIATION DEPLETION Cost Depletion, Percentage Depletion SPREADSHEETS AND DEPRECIATION 11. INCOME TAXES A PARTNER IN THE BUSINESS CALCULATION OF TAXABLE INCOME Taxable Income of Individuals, Classification of Business Expenditures, Taxable Income of Business Firms INCOME TAX RATES Individual Tax Rates, Corporate Tax Rates, Combined Federal and State Income Taxes, Selecting an Income Tax Rate for Economic Studies ECONOMIC ANALYSIS TAKING INCOME TAXES INTO ACCOUNT CAPITAL GAINS AND LOSSES FOR NON-DEPRECIABLE ASSETS Investment Tax Credit ESTIMATING THE AFTER-TAX RATE OF RETURN AFTER-TAX CASH FLOWS AND SPREADSHEETS 12. REPLACEMENT ANALYSIS THE REPLACEMENT PROBLEM REPLACEMENT ANALYSIS DECISION MAP WHAT IS THE BASIC COMPARISON? Minimum Cost Life of the Challenger, Use of Marginal Cost Data, Replacement Analysis Technique #1, Minimum Cost Life of the Defender, Replacement Analysis Technique #2, No Defender Marginal Cost Data Available, Replacement Analysis Technique #3, Repeatability Assumptions Not Acceptable, A Closer Look at Future Challengers AFTER-TAX REPLACEMENT ANALYSIS Marginal Costs on an After-Tax Basis, After-Tax Cash Flows for the Challenger, After-Tax Cash Flows for the Defender, Minimum Cost Life Problems SPREADSHEETS AND AFTER-TAX REPLACEMENT ANALYSIS Values of Interest Factors When N Equals Infinity (Each chapter ends with a summary and problems.)