ENGINEERING ECONOMY - GBV

148kB Size 10 Downloads 37 Views

ENGINEERING ECONOMY SIXTEENTH EDITION GLOBAL EDITION WILLIAM G. SULLIVAN ELIN M. WICKS C. PATRICK KOELLING Virginia Polytechnic Institute …
ENGINEERING

ECONOMY

SIXTEENTH EDITION GLOBAL EDITION

WILLIAM G. SULLIVAN

ELIN M. WICKS

C. PATRICK KOELLING

Virginia Polytechnic Institute and State University

Wieks and Associates, L.L.P.

Virginia Polytechnic Institute and State University

Global Edition contributions by Anisha Sharma

PEARSON Upper Saddle River Boston Columbus San Francisco New York Indianapolis London Toronto Sydney Singapore Tokyo Montreal Dubai Madrid Hong Kong Mexico City Munich Paris Amsterdam Cape Town

CONTENTS

Preface Green Content CHARTER 1 Introduction to Engineering Economy 1.1 1.2 1.3 1.4 1.5 1.6

Introduction The Principles of Engineering Economy Engineering Economy and the Design Process Using Spreadsheets in Engineering Economic Analysis Try Your Skills Summary

CHARTER 2 Cost Concepts and Design Economics 2.1 Cost Terminology 2.2 The General Economic Environment 2.3 Cost-Driven Design Optimization 2.4 Present Economy Studies 2.5 Gase Study—The Economics of Daytime Running Lights 2.6 Try Your Skills 2.7 Summary Appendix 2-A Accounting Fundamentals

CHARTERS Cost-Estimation Techniques 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8

Introduction An Integrated Approach Selected Estimating Techniques (Models) Parametric Cost Estimating Gase Study—Demanufacturing of Computers Electronic Spreadsheet Modeling: Learning Curve Try Your Skills Summary

13 20

25 26 27 31 39 39 40

44 45 51 62 67 73 75 76 84

91 92 94 102 107 118 120 122 124 7

3 CONTENTS CHARTER 4 The Time Value of Money 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19

Introduction Simple Interest Compound Interest The Concept of Equivalence Notation and Cash-Flow Diagrams and Tables Relating Present and Future Equivalent Values of Single Cash Flows Relating a Uniform Series (Annuity) to Its Present and Future Equivalent Values Summary of Interest Formulas and Relationships for Discrete Compounding Deferred Annuities (Uniform Series) Equivalence Calculations Involving Multiple Interest Formulas Uniform (Arithmetic) Gradient of Cash Flows Geometrie Sequences of Cash Flows Interest Rates that Vary with Time Nominal and Effective Interest Rates Compounding More Often than Once per Year Interest Formulas for Continuous Compounding and Discrete Cash Flows Case Study—Understanding Economic "Equivalence" Try Your Skills Summary

CHARTER 5 Evaluating a Single Project 5.1 5.2

Introduction Determining the Minimum Attractive Rate of Return (MARR) 5.3 The Present Worth Method 5.4 The Future Worth Method 5.5 The Annual Worth Method 5.6 The Internal Rate of Return Method 5.7 The External Rate of Return Method 5.8 The Payback (Payout) Period Method 5.9 Case Study—A Proposed Capital Investment to Improve Process Yield 5.10 Electronic Spreadsheet Modeling: Payback Period Method 5.11 Try Your Skills 5.12 Summary Appendix 5-A The Multiple Rate of Return Problem with the IRR Method

131 132 133 134 134 137 141 147 157 159 161 167 172 177 179 181 184 187 190 193

210 211 212 213 220 221 226 237 239 242 244 246 248 260

CONTENTS 9 CHARTER 6 Comparison and Selection among Alternatives 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11

Introduction Basic Concepts for Comparing Alternatives The Study (Analysis) Period Useful Lives Are Equal to the Study Period Useful Lives Are Unequal among the Alternatives Personal Finances Gase Study—Ned and Larry's Ice Cream Company Postevaluation of Results Project Postevaluation Spreadsheet Approach Try Your Skills Summary

CHARTER 7 Depreciation and Income Taxes 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11 7.12 7.13

Introduction Depreciation Concepts and Terminology The Classical (Historical) Depreciation Methode The Modified Accelerated Cost Recovery System A Comprehensive Depreciation Example Introduction to Income Taxes The Effective (Marginal) Corporate Income Tax Rate Gain (Loss) on the Disposal of an Asset General Procedure for Making After-Tax Economic Analyses Illustration of Computations of ATCFs Economic Value Added Try Your Skills Summary

CHARTERS Price Changes and Exchange Rates 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9

Introduction Terminology and Basic Concepts Fixed and Responsive Annuities Differential Price Changes Spreadsheet Application Foreign Exchange Rates and Purchasing Power Concepts Gase Study—Selecting Electric Motors to Power an Assembly Line Try Your Skills Summary

264 265 265 269 271 288 301 305 308 308 311 315

332 333 333 336 341 350 354 357 360 361 365 377 379 380

392 393 394 400 405 407 409 414 417 418

10 CONTENTS CHARTERS Replacement Analysis 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11

Introduction Reasons for Replacement Analysis Factors that Must Be Considered in Replacement Studies Typical Replacement Problems Determining the Economic Life of a New Asset (Challenger) Determining the Economic Life of a Defender Comparisons in Which the Defender's Useful Life Differs from that of the Challenger Retirement without Replacement (Abandonment) After-Tax Replacement Studies Case Study—Replacement of a Hospital's Emergency Electrical Supply System Summary

CHARTER 10 Evaluating Projects with the Benefit-Cost Ratio Method 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11

Introduction Perspective and Terminology for Analyzing Public Projects Self-Liquidating Projects Multiple-Purpose Projects Difficulties in Evaluating Public-Sector Projects What Interest Rate Should Be Used for Public Projects? The Benefit—Cost Ratio Method Evaluating Independent Projects by B-C Ratios Comparison of Mutually Exclusive Projects by B-C Ratios Case Study—Improving a Railroad Crossing Summary

CHARTER 11 Breakeven and Sensitivity Analysis 11.1 11.2 11.3 11.4 11.5

Introduction Breakeven Analysis Sensitivity Analysis Multiple Factor Sensitivity Analysis Summary

427 428 428 429 432 435 439 442 445 446 454 457

467 468 469 470 470 473 474 476 482 484 489 491

499 500 500 507 513 517

CONTENTS 11 CHARTER 12 Probabilistic Risk Analysis 12.1 12.2 12.3 12.4 12.5

Introduction Sources of Uncertainty The Distribution of Random Variables Evaluation of Projects with Discrete Random Variables Evaluation of Projects with Continuous Random Variables 12.6 Evaluation of Risk and Uncertainty by Monte Carlo Simulation 12.7 Performing Monte Carlo Simulation with a Computer 12.8 Decision Trees 12.9 Real Options Analysis 12.10 Summary

CHARTER 13 The Capital Budgeting Process 13.1 13.2 13.3 13.4 13.5 13.6 13.7

Introduction Debt Capital Equity Capital The Weighted Average Cost of Capital (WACC) Project Selection Postmortem Review Budgeting of Capital Investments and Management Perspective 13.8 Leasing Decisions 13.9 Capital Allocation 13.10 Summary

CHARTER 14 Decision Making Considering Multiattributes 14.1 14.2 14.3 14.4 14.5 14.6 14.7 14.8

Introduction Examples of Multiattribute Decisions Choice of Attributes Selection of a Measurement Scale Dimensionality of the Problem Noncompensatory Models Compensatory Models Summary

526 527 528 528 532 541 546 550 554 559 562

570 571 573 574 577 581 585 586 587 589 595

599 600 600 602 602 603 603 608 616

12

CONTENTS Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Appendix G

Using Excel to Solve Engineering Economy Problems Abbreviations and Notation Interest and Annuity Tables for Discrete Compounding Interest and Annuity Tables for Continuous Compounding Standard Normal Distribution Selected References Solutions to Try Your Skills

622 639 643 662 666 669 672 684

Comments