Engineering Economy

For courses in undergraduate introductory engineering economics.

Understand the importance of engineering economics principles and how to make smart economic choices

Used by engineering students worldwide, this bestselling text provides a sound understanding of the principles, basic concepts, and methodology of engineering economy. Explanations and examples that are student-centered and practical in real-life situations help students develop proficiency in the methods and processes for making rational decisions. Built upon the rich and time-tested teaching materials of earlier editions, the text is extensively revised and updated to reflect current trends and issues. The new edition captures the spirit of environmental sustainability with more than 160 “green” problems, as well as new end-of-chapter problems and group exercises, and includes updates to the new 2017 Federal Tax code revisions.

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Features
This title is a Pearson Global Edition. The Editorial team at Pearson has worked closely with educators around the world to include content which is especially relevant to students outside the United States.

Provide a Solid Foundation in the Principles, Concepts, and Methodology of Engineering Economy

A brief basic review of simple accounting principles is included.
Cost estimating is emphasized in the text.
Real-world engineering economy analysis methodology helps students develop proficiency with the methodology and processes for making rational decisions in situations they are likely to encounter in professional practice.
Many spreadsheet models and examples integrated throughout the text include hand-worked and computer solutions with spreadsheets, allowing students to see both techniques side by side.
Internet-accessible electronic spreadsheets provide approximately 50 basic templates for all major topics in the text, and summarize formulas and key concepts.
Expanded—Treatment of the economic aspects of engineering design is featured.
Revised—Appendix A, a description of accounting fundamentals, is now part of the book.
 

Prepare Students for Professional Practice

FE Practice Problems are multiple-choice questions that appear at the end of each chapter to help prepare engineering students for milestone examinations like the Fundamentals of Engineering written examination.
Case studies with end-of-chapter questions allow students to see how concepts are applied in the real world, while encouraging them to hone their writing and critical thinking skills.
Expanded- “Try Your Skills” problem sets double in count for Chapters 1—8 and appear for Chapters 9 through 11.
New-Group in-class problem exercises are ideal for in-class, team-based problem solving with three to four students in each group and appear in the majority of chapters.
Updated - Over 900 examples, solved problems and end-of-chapter problems include 70 “Try Your Skills” problems in selected chapters, with full solutions given in Appendix G.
Over 160 Green Engineering problems appear as a subset of the book’s 750 problems and have been integrated throughout this edition. Many of the problems incorporate energy conservation in commonly experienced situations with which students can identify.
 

MyLab™ Engineering is not included.

Students, if MyLab Engineering is a recommended/mandatory component of the course, please ask your instructor for the correct ISBN. MyLab Engineering should only be purchased when required by an instructor. Instructors, contact your Pearson representative for more information.

Also available with MyLab

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Interactive “Help Me Solve This” tutorials provide opportunity for point-of-use help and more practice.
Video solutions are available to help explain chapter concepts or walk students through example exercises. These are available to students at all times in the Multimedia Library.
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New to this Edition
Provide a Solid Foundation in the Principles, Concepts, and Methodology of Engineering Economy

Expanded—Treatment of the economic aspects of engineering design is featured.
Revised—Appendix A, a description of accounting fundamentals, is now part of the book.
 

Prepare Students for Professional Practice

Expanded-“Try Your Skills” problem sets double in count for Chapters 1—8 and also appear for Chapters 9 through 11.
New-Group in-class problem exercises are ideal for in-class, team-based problem solving with three to four students in each group and appear in the majority of chapters.
Updated - Over 900 examples, solved problems and end-of-chapter problems include 70 “Try Your Skills” problems in selected chapters, with full solutions given in Appendix G.
Over 160 Green Engineering problems appear as a subset of the book’s 750 problems and have been integrated throughout this edition. Many of the problems incorporate energy conservation in commonly experienced situations with which students can identify.
 

MyLab™ Engineering is not included.

Students, if MyLab Engineering is a recommended/mandatory component of the course, please ask your instructor for the correct ISBN. MyLab Engineering should only be purchased when required by an instructor. Instructors, contact your Pearson representative for more information.
Table of Contents
Green Content

CHAPTER 1

Introduction to Engineering Economy

1.1 Introduction

1.2 The Principles of Engineering Economy

1.3 Engineering Economy and the Design Process

1.4 Using Spreadsheets in Engineering Economic Analysis  

1.5 Try Your Skills

1.6 Summary

CHAPTER 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 Case Study–The Economics of Daytime Running Lights  

2.6 In Class Exercise

2.7 Try Your Skills

2.8 Summary

Appendix 2-A Accounting Fundamentals

CHAPTER 3

Cost-Estimation Techniques

3.1 Introduction

3.2 An Integrated Approach

3.3 Selected Estimating Techniques (Models)

3.4 Parametric Cost Estimating

3.5 Case Study–Demanufacturing of Computers

3.6 Electronic Spreadsheet Modeling: Learning Curve

3.7 In-Class Exercise

3.8 Try Your Skills

3.9 Summary

CHAPTER 4

The Time Value of Money

4.1 Introduction

4.2 Simple Interest  

4.3 Compound Interest

4.4 The Concept of Equivalence

4.5 Notation and Cash-Flow Diagrams and Tables

4.6 Relating Present and Future Equivalent Values

4.7 Relating a Uniform Series (Annuity) to Its Present and Future Equivalent

4.8 Summary of Interest Formulas and Relationships for Discrete Compounding

4.9 Deferred Annuities (Uniform Series)

4.10 Equivalence Calculations Involving Multiple Interest Formulas

4.11 Uniform (Arithmetic) Gradient of Cash Flows

4.12 Geometric Sequences of Cash Flows

4.13 Interest Rates that Vary with Time

4.14 Nominal and Effective Interest Rates

4.15 Compounding More Often than Once per Year

4.16 Interest Formulas for Continuous Compounding and Discrete Cash Flows

4.17 Case Study–Understanding Economic “Equivalence”

4.18 In-Class Exercise

4.19 Try Your Skills

4.20 Summary

CHAPTER 5

Evaluating a Single Project

5.1 Introduction

5.2 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 In-Class Exercise

5.12 Try Your Skills

5.13 Summary

Appendix 5-A The Multiple Rate of Return Problem with the IRR Method

CHAPTER 6

Comparison and Selection among Alternatives

6.1 Introduction

6.2 Basic Concepts for Comparing Alternatives

6.3 The Study (Analysis) Period

6.4 Useful Lives Are Equal to the Study Period

6.5 Useful Lives Are Unequal among the Alternatives

6.6 Personal Finances

6.7 Case Study–Ned and Larry’s Ice Cream Company

6.8 Postevaluation of Results

6.9 Project Postevaluation Spreadsheet Approach

6.10 In-Class Exercise

6.11Try Your Skills

6.12 Summary

CHAPTER 7

Depreciation and Income Taxes

7.1 Introduction

7.2 Depreciation Concepts and Terminology

7.3 The Classical (Historical) Depreciation Methods

7.4 The Modified Accelerated Cost Recovery System

7.5 A Comprehensive Depreciation Example

7.6 Introduction to Income Taxes

7.7 The Effective Corporate Income Tax Rate

7.8 Gain (Loss) on the Disposal of an Asset

7.9 General Procedure for Making After-Tax Economic Analyses

7.10 Illustration of Computations of ATCFs

7.11 Economic Value Added

7.12 In-Class Exercise

7.13 Try Your Skills

7.14 Summary

CHAPTER 8

Price Changes and Exchange Rates

8.1 Introduction

8.2 Terminology and Basic Concepts

8.3 Fixed and Responsive Annuities

8.4 Differential Price Changes

8.5 Spreadsheet Application

8.6 Foreign Exchange Rates and Purchasing Power Concepts

8.7 Case Study–Selecting Electric Motors to Power an Assembly Line

8.8 In-Class Exercise

8.9 Try Your Skills

8.10 Summary 394of Single Cash Flows

CHAPTER 9

Replacement Analysis

9.1 Introduction

9.2 Reasons for Replacement Analysis

9.3 Factors that Must Be Considered in Replacement Studies

9.4 Typical Replacement Problems

9.5 Determining the Economic Life of a New Asset (Challenger)

9.6 Determining the Economic Life of a Defender

9.7 Comparisons in Which the Defender’s Useful Life Differs from that of the Challenger

9.8 Retirement without Replacement (Abandonment)

9.9 After-Tax Replacement Studies

9.10 Case Study–Replacement of a Hospital’s Emergency Electrical Supply System

9.11 Try Your Skills

9.12 Summary

CHAPTER 10

Evaluating Projects with the Benefit−Cost Ratio Method

10.1 Introduction

10.2 Perspective and Terminology for Analyzing Public Projects

10.3 Self-Liquidating Projects

10.4 Multiple-Purpose Projects

10.5 Difficulties in Evaluating Public-Sector Projects

10.6 What Interest Rate Should Be Used for Public Projects?

10.7 The Benefit−Cost Ratio Method

10.8 Evaluating Independent Projects by B−C Ratios

10.9 Comparison of Mutually Exclusive Projects by B−C Ratios

10.10 Case Study–Improving a Railroad Crossing

10.11 Try Your Skills

10.12 Summary

CHAPTER 11

Breakeven and Sensitivity Analysis

11.1 Introduction

11.2 Breakeven Analysis

11.3 Sensitivity Analysis

11.4 Multiple Factor Sensitivity Analysis

11.5 Try Your Skills

11.6 Summary

CHAPTER 12

Probabilistic Risk Analysis

12.1 Introduction

12.2 Sources of Uncertainty

12.3 The Distribution of Random Variables

12.4 Evaluation of Projects with Discrete Random Variables

12.5 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

CHAPTER 13

The Capital Budgeting Process

13.1 Introduction

13.2 Debt Capital

13.3 Equity Capital

13.4 The Weighted Average Cost of Capital (WACC)

13.5 Project Selection

13.6 Postmortem Review

13.7 Budgeting of Capital Investments and Management Perspective

13.8 Leasing Decisions

13.9 Capital Allocation

13.10 Summary

CHAPTER 14

Decision Making Considering Multiattributes

14.1 Introduction

14.2 Examples of Multiattribute Decisions

14.3 Choice of Attributes

14.4 Selection of a Measurement Scale

14.5 Dimensionality of the Problem

14.6 Noncompensatory Models

14.7 Compensatory Models

14.8 Summary

Appendix A Using Excel to Solve Engineering Economy Problems

Appendix B Abbreviations and Notation

Appendix C Interest and Annuity Tables for Discrete Compounding

Appendix D Interest and Annuity Tables for Continuous Compounding

Appendix E Standard Normal Distribution

Appendix F Selected References

Appendix G Solutions to Try Your Skills

Appendix H Answers to Selected Problems