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For courses in engineering and economics Comprehensively blends engineering concepts with economic theory Contemporary Engineering Economics teaches engineers how to make smart financial decisions in an effort to create economical products. As design and manufacturing become an integral part of engineers’ work, they are required to make more and more decisions regarding money. The 6th Edition helps students think like the 21st century engineer who is able to incorporate elements of science, engineering, design, and economics into his or her products.
This text comprehensively integrates economic theory with principles of engineering, helping students build sound skills in financial project analysis. The full text downloaded to your computer With eBooks you can: search for key concepts, words and phrases make highlights and notes as you study share your notes with friends eBooks are downloaded to your computer and accessible either offline through the Bookshelf (available as a free download), available online and also via the iPad and Android apps.
Annað
- Höfundur: Chan Park
- Útgáfa:6
- Útgáfudagur: 2016-01-08
- Blaðsíður: 984
- Hægt að prenta út 2 bls.
- Hægt að afrita 2 bls.
- Format:Page Fidelity
- ISBN 13: 9781292109107
- Print ISBN: 9781292109091
- ISBN 10: 1292109106
Efnisyfirlit
- Half Title Page
- Title Page
- Copyright Page
- Contents
- Preface
- Half Title Page
- Part 1 Basics of Financial Decisions
- Chapter 1 Engineering Economic Decisions
- 1.1 Role of Engineers in Business
- 1.1.1 Types of Business Organization
- 1.1.2 Engineering Economic Decisions
- 1.1.3 Personal Economic Decisions
- 1.1.4 Economic Decisions Versus Design Decisions
- 1.2 What Makes the Engineering Economic Decision Difficult?
- 1.3 Large-Scale Engineering Projects
- 1.3.1 Are Tesla’s plans for a Giant Battery Factory Realistic?
- 1.3.2 Impact of Engineering Projects on Financial Statements
- 1.4 Common Types of Strategic Engineering Economic Decisions
- 1.4.1 Equipment or Process Selection
- 1.4.2 Equipment Replacement
- 1.4.3 New Product or Product Expansion
- 1.4.4 Cost Reduction
- 1.4.5 Improvement in Service or Quality
- 1.5 Fundamental Principles of Engineering Economics
- Summary
- Short Case Studies
- 1.1 Role of Engineers in Business
- Chapter 2 Accounting and Financial Decision Making
- 2.1 Accounting: The Basis of Decision Making
- 2.2 Financial Status for Businesses
- 2.2.1 The Balance Sheet
- 2.2.2 The Income Statement
- 2.2.3 The Cash Flow Statement
- 2.3 Using Ratios to Make Business Decisions
- 2.3.1 Debt Management Analysis
- 2.3.2 Liquidity Analysis
- 2.3.3 Asset Management Analysis
- 2.3.4 Profitability Analysis
- 2.3.5 Market Value Analysis
- 2.3.6 Limitations of Financial Ratios in Business Decisions
- Summary
- Problems
- Short Case Studies
- Chapter 3 Interest Rate and Economic Equivalence
- 3.1 Interest: The Cost of Money
- 3.1.1 The Time Value of Money
- 3.1.2 Elements of Transactions Involving Interest
- 3.1.3 Methods of Calculating Interest
- 3.2 Economic Equivalence
- 3.2.1 Definition and Simple Calculations
- 3.2.2 Equivalence Calculations: General Principles
- 3.3 Development of Formulas for Equivalence Calculations
- 3.3.1 The Five Types of Cash Flows
- 3.3.2 Single-Cash Flow Formulas
- 3.3.3 Equal-Payment Series
- 3.3.4 Linear-Gradient Series
- 3.3.5 Geometric Gradient Series
- 3.3.6 Irregular (Mixed) Payment Series
- 3.4 Unconventional Equivalence Calculations
- 3.4.1 Composite Cash Flows
- 3.4.2 Determining an Interest Rate to Establish Economic Equivalence
- 3.4.3 Unconventional Regularity in Cash Flow Pattern
- Summary
- Problems
- Short Case Studies
- 3.1 Interest: The Cost of Money
- Chapter 4 Understanding Money and Its Management
- 4.1 Nominal and Effective Interest Rates
- 4.1.1 Nominal Interest Rates
- 4.1.2 Effective Annual Interest Rates
- 4.1.3 Effective Interest Rates per Payment Period
- 4.1.4 Continuous Compounding
- 4.2 Equivalence Calculations with Effective Interest Rates
- 4.2.1 When Payment Period is Equal to Compounding Period
- 4.2.2 Compounding Occurs at a Different Rate than That at Which Payments are Made
- 4.2.4 Compounding is Less Frequent than Payments
- 4.3 Equivalence Calculations with Continuous Compounding
- 4.3.1 Discrete-Payment Transactions with Continuous Compounding
- 4.3.2 Continuous-Funds Flow with Continuous Compounding
- 4.4 Changing Interest Rates
- 4.4.1 Single Sums of Money
- 4.4.2 Series of Cash Flows
- 4.5 Debt Management
- 4.5.1 Commercial Loans
- 4.5.2 Loan versus Lease Financing
- 4.5.3 Home Mortgage
- 4.6 Investing in Financial Assets
- 4.6.1 Investment Basics
- 4.6.2 How to Determine Your Expected Return
- 4.6.3 Investing in Bonds
- Summary
- Problems
- Short Case Studies
- 4.1 Nominal and Effective Interest Rates
- Chapter 1 Engineering Economic Decisions
- Chapter 5 Present-Worth Analysis
- 5.1 Describing Project Cash Flows
- 5.1.1 Loan versus Project Cash Flows
- 5.1.2 Independent versus Mutually Exclusive Investment Projects
- 5.2 Initial Project Screening Method
- 5.2.1 Payback Period The Time It Takes to Pay Back
- 5.2.2 Benefits and Flaws of Payback Screening
- 5.2.3 Discounted Payback Period
- 5.2.4 Where Do We Go From Here?
- 5.3 Discounted Cash Flow Analysis
- 5.3.1 Net-Present-Worth Criterion
- 5.3.2 Meaning of Net Present Worth
- 5.3.3 Basis for Selecting the MARR
- 5.4 Variations of Present-Worth Analysis
- 5.4.1 Future-Worth Analysis
- 5.4.2 Capitalized Equivalent Method
- 5.5 Comparing Mutually Exclusive Alternatives
- 5.5.1 Meaning of Mutually Exclusive and “Do Nothing”
- 5.5.2 Service Projects versus Revenue Projects
- 5.5.3 Application of Investment Criteria
- 5.5.4 Scale of Investment
- 5.5.5 Analysis Period
- 5.5.6 Analysis Period Matches Project Lives
- 5.5.7 Analysis Period Differs from Project Lives
- 5.5.8 Analysis Period is Not Specified
- Summary
- Problems
- Short Case Studies
- 5.1 Describing Project Cash Flows
- Chapter 6 Annual Equivalent Worth Analysis
- 6.1 Annual Equivalent-Worth Criterion
- 6.1.1 Fundamental Decision Rule
- 6.1.2 Annual-Worth Calculation with Repeating Cash Flow Cycles
- 6.1.3 Comparing Mutually Exclusive Alternatives
- 6.2 Capital Costs Versus Operating Costs
- 6.3 Applying Annual-Worth Analysis
- 6.3.1 Benefits of AE Analysis
- 6.3.2 Unit Profit or Cost Calculation
- 6.3.3 Make or Buy Decision-Outsourcing Decisions
- 6.3.4 Pricing the Use of an Asset
- 6.4 Life-Cycle Cost Analysis
- 6.5 Design Economics
- Summary
- Problems
- Short Case Studies
- 6.1 Annual Equivalent-Worth Criterion
- Chapter 7 Rate-of-Return Analysis
- 7.1 Rate of Return
- 7.1.1 Return on Investment
- 7.1.2 Return on Invested Capital
- 7.2 Methods for Finding the Rate of Return
- 7.2.1 Simple versus Nonsimple Investments
- 7.2.2 Predicting Multiple i*s
- 7.2.3 Computational Methods
- 7.3 Internal-Rate-of-Return Criterion
- 7.3.1 Relationship to PW Analysis
- 7.3.2 Net Investment Test: Pure versus Mixed Investments
- 7.3.3 Decision Rule for Pure Investments
- 7.3.4 Decision Rule for Mixed Investments
- 7.3.5 Modified Internal Rate of Return (MIRR)
- 7.4 Mutually Exclusive Alternatives
- 7.4.1 Flaws in Project Ranking by IRR
- 7.4.2 Incremental Investment Analysis
- 7.4.3 Handling Unequal Service Lives
- Summary
- Problems
- Short Case Studies
- 7.1 Rate of Return
- Chapter 8 Cost Concepts Relevant to Decision Making
- 8.1 General Cost Terms
- 8.1.1 Manufacturing Costs
- 8.1.2 Nonmanufacturing Costs
- 8.2 Classifying Costs for Financial Statements
- 8.2.1 Period Costs
- 8.2.2 Product Costs
- 8.3 Cost Classification for Predicting Cost Behavior
- 8.3.1 Volume Index
- 8.3.2 Cost Behaviors
- 8.3.3 Cost–Volume–Profit Analysis
- 8.4 Future Costs for Business Decisions
- 8.4.1 Differential Cost and Revenue
- 8.4.2 Opportunity Cost
- 8.4.3 Sunk Costs
- 8.4.4 Marginal Cost
- 8.5 Estimating Profit from Operation
- 8.5.1 Calculation of Operating Income
- 8.5.2 Annual Sales Budget for a Manufacturing Business
- 8.5.3 Preparing the Annual Production Budget
- 8.5.4 Preparing the Cost-of-Goods-Sold Budget
- 8.5.5 Preparing the Nonmanufacturing Cost Budget
- 8.5.6 Putting It All Together: The Budgeted Income Statement
- 8.5.7 Looking Ahead
- Summary
- Problems
- Short Case Studies
- 8.1 General Cost Terms
- Chapter 9 Depreciation and Corporate Taxes
- 9.1 Asset Depreciation
- 9.1.1 Economic Depreciation
- 9.1.2 Accounting Depreciation
- 9.2 Factors Inherent in Asset Depreciation
- 9.2.1 Depreciable Property
- 9.2.2 Cost Basis
- 9.2.3 Useful Life and Salvage Value
- 9.2.4 Depreciation Methods: Book and Tax Depreciation
- 9.3 Book Depreciation Methods
- 9.3.1 Straight-Line Method
- 9.3.2 Declining Balance Method
- 9.3.3 Units of Production Method
- 9.4 Tax Depreciation Methods
- 9.4.1 MACRS Depreciation
- 9.4.2 MACRS Depreciation Rules
- 9.5 Depletion
- 9.5.1 Cost Depletion
- 9.5.2 Percentage Depletion
- 9.6 Repairs or Improvements Made to Depreciable Assets
- 9.6.1 Revision of Book Depreciation
- 9.6.2 Revision of Tax Depreciation
- 9.7 Corporate Taxes
- 9.7.1 Income Taxes on Operating Income
- 9.8 Tax Treatment of Gains or Losses on Depreciable Assets
- 9.8.1 Disposal of a MACRS Property
- 9.8.2 Calculations of Gains and Losses on MACRS Property
- 9.9 Income Tax Rate to Be Used in Economic Analysis
- 9.9.1 Incremental Income Tax Rate
- 9.9.2 Consideration of State Income Taxes
- 9.10 The Need For Cash Flow in Engineering Economic Analysis
- 9.10.1 Net Income versus Net Cash Flow
- 9.10.2 Treatment of Noncash Expenses
- Summary
- Problems
- Short Case Studies
- 9.1 Asset Depreciation
- Chapter 10 Developing Project Cash Flows
- 10.1 Cost-Benefit Estimation for Engineering Projects
- 10.1.1 Simple Projects
- 10.1.2 Complex Projects
- 10.2 Incremental Cash Flows
- 10.2.1 Elements of Cash Outflows
- 10.2.2 Elements of Cash Inflows
- 10.2.3 Classification of Cash Flow Elements
- 10.3 Developing Cash Flow Statements
- 10.3.1 When Projects Require Only Operating and Investing Activities
- 10.3.2 When Projects Require Working-Capital Investments
- 10.3.3 When Projects are Financed with Borrowed Funds
- 10.3.4 When Projects Result in Negative Taxable Income
- 10.3.5 When Projects require Multiple Assets
- 10.4 Generalized Cash-Flow Approach
- 10.4.1 Setting up Net Cash-Flow Equations
- 10.4.2 Presenting Cash Flows in Compact Tabular Formats
- 10.4.3 Lease-or-Buy Decision
- Summary
- Problems
- Short Case Studies
- 10.1 Cost-Benefit Estimation for Engineering Projects
- Chapter 11 Inflation and Its Impact on Project Cash Flows
- 11.1 Meaning and Measure of Inflation
- 11.1.1 Measuring Inflation
- 11.1.2 Actual versus Constant Dollars
- 11.2 Equivalence Calculations Under Inflation
- 11.2.1 Market and Inflation-Free Interest Rates
- 11.2.2 Constant-Dollar Analysis
- 11.2.3 Actual Dollar Analysis
- 11.2.4 Mixed-Dollar Analysis
- 11.3 Effects of Inflation on Project Cash Flows
- 11.3.1 Multiple Inflation Rates
- 11.3.2 Effects of Borrowed Funds Under Inflation
- 11.4 Rate-of-Return Analysis under Inflation
- 11.4.1 Effects of Inflation on Return on Investment
- 11.4.2 Effects of Inflation on Working Capital
- Summary
- Problems
- Short Case Studies
- 11.1 Meaning and Measure of Inflation
- Chapter 12 Project Risk and Uncertainty
- 12.1 Origins of Project Risk
- 12.2 Methods of Describing Project Risk
- 12.2.1 Sensitivity (What-if) Analysis
- 12.2.2 Break-Even Analysis
- 12.2.3 Scenario Analysis
- 12.3 Probability Concepts for Investment Decisions
- 12.3.1 Assessment of Probabilities
- 12.3.2 Summary of Probabilistic Information
- 12.3.3 Joint and Conditional Probabilities
- 12.3.4 Covariance and Coefficient of Correlation
- 12.4 Probability Distribution of NPW
- 12.4.1 Procedure for Developing an NPW Distribution
- 12.4.2 Aggregating Risk over Time
- 12.4.3 Decision Rules for Comparing Mutually Exclusive Risky Alternatives
- 12.5 Risk Simulation
- 12.5.1 Computer Simulation
- 12.5.2 Model Building
- 12.5.3 Monte Carlo Sampling
- 12.5.4 Simulation Output Analysis
- 12.5.5 Risk Simulation with Oracle Crystal Ball
- 12.6 Decision Trees and Sequential Investment Decisions
- 12.6.1 Structuring a Decision-Tree Diagram
- 12.6.2 Worth of Obtaining Additional Information
- 12.6.3 Decision Making after Having Imperfect Information
- Summary
- Problems
- Short Case Studies
- Chapter 13 Real-Options Analysis
- 13.1 Risk Management: Financial Options
- 13.1.1 Features of Financial Options
- 13.1.2 Buy Call Options When You Expect the Price to Go Up
- 13.1.3 Buy Put Options When You Expect the Price to Go Down
- 13.2 Option Strategies
- 13.2.1 Buying Calls to Reduce Capital That is at Risk
- 13.2.2 Protective Puts as a Hedge
- 13.3 Option Pricing
- 13.3.1 Replicating-Portfolio Approach with a Call Option
- 13.3.2 Risk-Free Financing Approach
- 13.3.3 Risk-Neutral Probability Approach
- 13.3.4 Put-Option Valuation
- 13.3.5 Two-Period Binomial Lattice Option Valuation
- 13.3.6 Multiperiod Binomial Lattice Model
- 13.3.7 Black-Scholes Option Model
- 13.4 Real-Options Analysis
- 13.4.1 How is Real Options Analysis Different?
- 13.4.2 A Conceptual Framework for Real Options in Engineering Economics
- 13.5 Simple Real-Option Models
- 13.5.1 Option to Defer Investment
- 13.5.2 Patent and License Valuation
- 13.5.3 Growth Option—Option to Expand
- 13.5.4 Scale-Up Option
- 13.5.5 Compound Options
- 13.6 Estimating Volatility at the Project Level
- 13.6.1 Mathematical Relationship between s and sT
- 13.6.2 Estimating VT Distribution
- Summary
- Problems
- Short Case Studies
- 13.1 Risk Management: Financial Options
- Chapter 14 Replacement Decisions
- 14.1 Replacement Analysis Fundamentals
- 14.1.1 Basic Concepts and Terminology
- 14.1.2 Opportunity Cost Approach to Comparing Defender and Challenger
- 14.2 Economic Service Life
- 14.3 Replacement Analysis when the Required Service is Long
- 14.3.1 Required Assumptions and Decision Frameworks
- 14.3.2 Replacement Strategies under the Infinite Planning Horizon
- 14.3.3 Replacement Strategies under the Finite Planning Horizon
- 14.3.4 Consideration of Technological Change
- 14.4 Replacement Analysis with Tax Considerations
- Summary
- Problems
- Short Case Studies
- 14.1 Replacement Analysis Fundamentals
- Chapter 15 Capital Budgeting Decisions
- 15.1 Methods of Financing
- 15.1.1 Equity Financing
- 15.1.2 Debt Financing
- 15.1.3 Capital Structure
- 15.2 Cost of Capital
- 15.2.1 Cost of Equity
- 15.2.2 Cost of Debt
- 15.2.3 Calculating the Cost of Capital
- 15.3 Choice of Minimum Attractive Rate of Return
- 15.3.1 Choice of MARR when Project Financing is Known
- 15.3.2 Choice of MARR when Project Financing is Unknown
- 15.3.3 Choice of MARR under Capital Rationing
- 15.4 Capital Budgeting
- 15.4.1 Evaluation of Multiple Investment Alternatives
- 15.4.2 Formulation of Mutually Exclusive Alternatives
- 15.4.3 Capital-Budgeting Decisions with Limited Budgets
- Summary
- Problems
- Short Case Studies
- 15.1 Methods of Financing
- Chapter 16 Economic Analysis in the Service Sector
- 16.1 What Is The Service Sector?
- 16.1.1 Characteristics of the Service Sector
- 16.1.2 Difficulty of Pricing Service
- 16.2 Economic Analysis in The Public Sector
- 16.2.1 What is Benefit-Cost Analysis?
- 16.2.2 Framework of Benefit–Cost Analysis
- 16.2.3 Valuation of Benefits and Costs
- 16.2.4 Quantifying Benefits and Costs
- 16.2.5 Difficulties Inherent in Public Project Analysis
- 16.3 Benefit–Cost Ratios
- 16.3.1 Definition of Benefit–Cost Ratio
- 16.3.2 Profitability Index (Net B/C ratio)
- 16.3.2 Relationship Among B/C Ratio Profitability Index and NPW
- 16.3.4 Comparing Mutually Exclusive Alternatives Incremental Analysis
- 16.4 Analysis of Public Projects Based on Cost-Effectiveness
- 16.4.1 Cost-Effectiveness Studies in the Public Sector
- 16.4.2 A Cost-Effectiveness Case Study
- 16.5 Economic Analysis in Health-Care Service
- 16.5.1 Economic Evaluation Tools
- 16.5.2 Cost-Effectiveness Analysis in the Health Care Sector
- 16.5.3 Cost-Utility Analysis
- Summary
- Problems
- Short Case Studies
- 16.1 What Is The Service Sector?
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- L
- M
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- P
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- R
- S
- T
- U
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