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(The following description was used when this course was taught during the Fall 1999 Semester. There will likely be differences in the instructor, textbook, and/or outline the next time the course is taught.)
Instructor: Don Smith
Text: Engineering Economy (11th Edition) by DeGarmo, Sullivan, Bontadelli
Description: Fundamental concepts and advanced techniques of engineering economic analysis. Evaluation of alternative capital investments considering income taxes and capital recovery. Discounted cash flow analysis of competing projects, break-even analysis and determination of rate of return on investment.
General Course Requirements
Background in integral and differential calculus, operative knowledge of computer-based spreadsheets (Microsoft Excel-Windows95) and graduate standing. Several Excel spreadsheets will be presented that incorporate visual basic macros. It is expected that students will take the time to familiarize themselves with basic macro construction within the Excel framework (MS Office97 suite).
Additionally, all students enrolled for this course must have an E-mail address with the ability to send and receive attached documents, spreadsheets, and other material suitable for electronic transmission.
Course Topics
- Background and Tools of Engineering Economy
- Introduction
- Origins of engineering economy
- Principles of engineering economy
- Accounting concepts
- Assigned problems: TBA
- Cost Concepts and the Economic Environment
- Cost Terminology
- Cost classifications
- Break-even analysis
- Assigned problems: TBA Time
- Time Value of Money and Economic Equivalence
- Interest and Equivalence
- Simple and compound interest
- Cash flow diagrams
- Derivations of the discrete equivalence relationships
- Continuous compounding
- Nominal and effective interest
- Applications of Time Value Concepts + Appendix A-4
- Min. attractive rate of return
- Present and Future value concepts
- Annual worth
- Basic rate of return analysis - pure investment case
- Internal rate of return, pure and mixed investments
- Multiple rate of return analysis - alternative formulations
- Concept of Project Balances
- Payback analysis and payback rate of return
- Loan analysis (interest and principal components)
- Classic "Oil Pump" problem and the RIC function
- Spreadsheet solutions
- Midterm Exam
- Comparing Economic Alternatives
- Mutually exclusive bundles
- Paring projects
- Incremental present worth and rate of return
- Equal and unequal life analysis
- Spreadsheet analysis
- Depreciation and Taxes
- Capital recovery (depreciation) models, Classical and MACRS models
- Depletion-brief overview
- The general federal tax equations and after-tax cash flow format
- Disposal of recovery assets - Section 1245 and 1250 assets
- After-tax cash flow analysis of industrial projects - spread sheet based model
- Spreadsheet analysis of after-tax cash flow problems
- Replacement Analysis - Before and After Tax
- Overview
- Economic Life - Defender and Challenger
- Equal and unequal lives
- Abandonment analysis
- Spreadsheet models
- Leasing analysis - after-tax view
- Capital Financing - Cost of Capital Models
- Sources and costs of capital components
- Weighted average cost of capital models
- Spreadsheet models
- Optional Topics - As Time Permits
- Capital allocation basic model
- Linear programming formulation
- Communicating Engineering Economy Results
- Overview
- Role of management
- Managerial perspectives
- Various communications strategies
- Final Examination
