ENGINEERING ECONOMY. William G. Sullivan. Fourteenth Edition. Prentice Hall. Virginia Polytechnic institute and State University

Transcription

1 ENGINEERING ECONOMY Fourteenth Edition William G. Sullivan Virginia Polytechnic Institute and State University, Emeritus Elin M. Wicks Wicks and Associates C. Patrick Koelling Virginia Polytechnic institute and State University PEARSON Pearson Education International Prentice Hall

2 CONTENTS Preface 11 Acknowledgments 17 Fundamentals of Engineering Economy CHAPTER 1 to Engineering Economy The Principles of Engineering Economy Engineering Economy and the Design Process Using Spreadsheets in Engineering Economic Analysis Summary CHAPTER 2i Cost Concepts and Design Economics Cost Terminology 40 ' 2.2 The General Economic Environment Cost-Driven Design Optimization Present Economy Studies Case Study The Economics of Daytime Running Lights Summary 73 Appendix 2-A Accounting Fundamentals 82 CHAPTER 3 Cost-Estimation Techniques An Integrated Approach Selected Estimating Techniques (Models) Parametric Cost Estimating Cost Estimation in the Design Process Case Study Demanufacturing of Computers Summary 128

3 6 CONTENTS CHAPTER 4 The Time Value of Money 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 Geometric 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" Summary 194 Engineering lec&nornyin Actionv^ sf -'M CHAPTER 5 Evaluating a Single Project Determining the Minimum Attractive Rate of Return (MARR) The Present Worth Method The Future Worth Method The Annual Worth Method The Internal Rate of Return Method The External Rate of Return Method The Payback (Payout) Period Method Case Study A Proposed Capital Investment to Improve Process Yield Summary Appendix 5-A The Multiple Rate of Return Problem with the IRR Method 254

4 CONTENTS 7 CHAPTER 6 Comparison and Selection among Alternatives 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 Case Study Ned and Larry's Ice Cream Company Postevaluation of Results Summary 303 CHAPTER 7 Depreciation and Income Taxes Depreciation Concepts and Terminology The Classical (Historical) Depreciation Methods The Modified Accelerated Cost Recovery System A Comprehensive Depreciation Example 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 Summary 365 CHAPTER 8 Price Changes and Exchange Rates Terminology and Basic Concepts Fixed and Responsive Annuities Spreadsheet Application Foreign Exchange Rates and Purchasing Power Concepts Case Study Selecting Electric Motors to Power an Assembly Line Summary 399 CHAPTER 9 Replacement Analysis Reasons for Replacement Analysis 410

5 8 CONTENTS 9.3 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 441 PART III Additional Topics in Engineering Economy CHAPTER 10 Evaluating Projects with the Benefit-Cost Ratio Method 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 Criticisms and Shortcomings of the Benefit-Cost Ratio Method Case Study Improving a Railroad Crossing Summary CHAPTER 11 Breakeven and Sensitivity Analysis Breakeven Analysis Sensitivity Analysis Multiple Factor Sensitivity Analysis Case Study Analysis of a Business Venture Summary 506

6 CONTENTS 9 CHAPTER 12 Probabilistic Risk Analysis Sources of Uncertainty The Distribution of Random Variables Evaluation of Projects with Discrete Random Variables Evaluation of Projects with Continuous Random Variables Evaluation of Uncertainty by Monte Carlo Simulation Performing Monte Carlo Simulation with a Computer Decision Trees Real Options Analysis Case Study The Oils Well That Ends Well Company Summary 559 CHAPTER 13 The Capital Budgeting Process , Debt Capital Equity Capital The Weighted Average Cost of Capital (WACC) Project Selection Postmortem Review Budgeting of Capital Investments and Management Perspective Leasing Decisions Capital Allocation Case Study Financing an Automobile Summary CHAPTER 14 Decision Making Considering Multiattributes Examples of Multiattribute Decisions Choice of Attributes Selection of a Measurement Scale Dimensionality of the Problem Noncompensatory Models Compensatory Models Summary 618

7 10 CONTENTS PART IV A B C D E F 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 Answers to Selected Problems ::.-....i Index 679