by Donald G. Newnan, Ted G. Eschenback and Jerome P. Lavelle
List price: $104.00
Now in a ninth edition, Engineering Economic Analysis offers comprehensive coverage of financial and economic decision-making for engineering projects, with an emphasis on problem solving, life cycle costs, and the time value of money. The spreadsheet material from the previous edition has been expanded, allowing students to create and analyze more realistic cash-flow models. The authors' concise, accessible writing style and practical emphasis make this text ideal for undergraduate engineering economy courses.
Features of the Ninth Edition
1. MAKING ECONOMIC DECISIONS
1.1. A Sea of Problems
1.1.1. Simple Problems
1.1.2. Intermediate Problems
1.1.3. Complex Problems
1.2. The Role of Engineering Economic Analysis
1.2.1. Examples of Engineering Economic Analysis
1.3. The Decision-Making Process
1.3.1. Rational Decision Making
1.4. Engineering Decision Making for Current Costs
2. ENGINEERING COSTS AND COST ESTIMATING
2.1. Engineering Costs
2.1.1. Fixed, Variable, Marginal, and Average Costs
2.1.2. Sunk Costs
2.1.3. Opportunity Costs
2.1.4. Recurring and Nonrecurring Costs
2.1.5. Incremental Costs
2.1.6. Cash Costs Versus Book Costs
2.1.7. Life-Cycle Costs
2.2. Cost Estimating
2.2.1. Types of Estimate
2.2.2. Difficulties in Estimation
2.3. Estimating Models
2.3.1. Per-Unit Model
2.3.2. Segmenting Model
2.3.3. Cost Indexes
2.3.4. Power-Sizing Model
2.3.5. Triangulation
2.3.6. Improvement and the Learning Curve
2.4. Estimating Benefits
2.5. Cash Flow Diagrams
2.5.1. Categories of Cash Flows
2.5.2. Drawing a Cash Flow Diagram
2.5.3. Drawing Cash Flow Diagrams with a Spreadsheet
3. INTEREST AND EQUIVALENCE
3.1. Computing Cash Flows
3.2. Time Value of Money
3.2.1. Simple Interest
3.2.2. Compound Interest
3.2.3. Repaying a Debt
3.3. Equivalence
3.3.1. Difference in Repayment Plans
3.3.2. Equivalence Is Dependent on Interest Rate
3.3.3. Application of Equivalence Calculations
3.4. Single Payment Compound Interest Formulas
4. MORE INTEREST FORMULAS
4.1. Uniform Series Compound Interest Formulas
4.2. Relationships Between Compound Interest Factors
4.2.1. Single Payment
4.2.2. Uniform Series
4.3. Arithmetic Gradient
4.3.1. Derivation of Arithmetic Gradient Factors
4.4. Geometric Gradient
4.5. Nominal and Effective Interest
4.6. Continuous Compounding
4.6.1. Single Payment Interest Factors: Continuous Compounding
4.6.2. Uniform Payment Series: Continuous Compounding at Nominal Rate r per Period
4.6.3. Continuous, Uniform Cash Flow (One Period) with Continuous Compounding at Nominal Interest Rate r
4.7. Spreadsheets for Economic Analysis
4.7.1. Spreadsheet Annuity Functions
4.7.2. Spreadsheet Block Functions
4.7.3. Using Spreadsheets for Basic Graphing
5. PRESENT WORTH ANALYSIS
5.1. Assumptions in Solving Economic Analysis Problems
5.1.1. End-of-Year Convention
5.1.2. Viewpoint of Economic Analysis Studies
5.1.3. Sunk Costs
5.1.4. Borrowed Money Viewpoint
5.1.5. Effect of Inflation and Deflation
5.1.6. Income Taxes
5.2. Economic Criteria
5.3. Applying Present Worth Techniques
5.3.1. Useful Lives Equal the Analysis Period
5.3.2. Useful Lives Different from the Analysis Period
5.3.3. Infinite Analysis Period: Capitalized Cost
5.3.4. Multiple Alternatives
5.4. Spreadsheets and Present Worth
6. ANNUAL CASH FLOW ANALYSIS
6.1. Annual Cash Flow Calculations
6.1.1. Resolving a Present Cost to an Annual Cost
6.1.2. Treatment of Salvage Value
6.2. Annual Cash Flow Analysis
6.3. Analysis Period
6.3.1. Analysis Period Equal to Alternative Lives
6.3.2. Analysis Period a Common Multiple of Alternative Lives
6.3.3. Analysis Period for a Continuing Requirement
6.3.4. Infinite Analysis Period
6.3.5. Some Other Analysis Period
6.4. Using Spreadsheets to Analyze Loans
6.4.1. Building an Amortization Schedule
6.4.2. How Much to Interest? How Much to Principal?
6.4.3. Finding the Balance Due on a Loan
6.4.4. Pay Off Debt Sooner by Increasing Payments
7. RATE OF RETURN ANALYSIS
7.1. Internal Rate of Return
7.2. Calculating Rate of Return
7.2.1. Plot of NPW versus Interest Rate i
7.3. Rate of Return Analysis
7.3.1. Present Worth Analysis
7.3.2. Analysis Period
7.4. Spreadsheets and Rate of Return Analysis
Appendix 7A: Difficulties in Solving for an Interest Rate
8. INCREMENTAL ANALYSIS
8.1. Graphical Solutions
8.2. Incremental Rate of Return Analysis
8.3. Elements in Incremental Rate of Return Analysis
8.3.1. Incremental Analysis with Unlimited Alternatives
8.4. Present Worth Analysis with Benefit-Cost Graphs
8.5. Choosing an Analysis Method
8.6. Spreadsheets and Incremental Analysis
9. OTHER ANALYSIS TECHNIQUES
9.1. Future Worth Analysis
9.2. Benefit-Cost Ratio Analysis
9.2.1. Continuous Alternatives
9.3. Payback Period
9.4. Sensitivity and Breakeven Analysis
9.5. Graphing with Spreadsheets for Sensitivity and Breakeven Analysis
10. UNCERTAINTY IN FUTURE EVENTS
10.1. Estimates and Their Use in Economic Analysis
10.2. A Range of Estimates
10.3. Probability
10.4. Joint Probability Distributions
10.5. Expected Value
10.6. Economic Decision Trees
10.7. Risk
10.8. Risk Versus Return
10.9. Simulation
11. DEPRECIATION
11.1. Basic Aspects of Depreciation
11.1.1. Deterioration and Obsolescence
11.1.2. Depreciation and Expenses
11.1.3. Types of Property
11.1.4. Depreciation Calculation Fundamentals
11.2. Historical Depreciation Methods
11.2.1. Straight-Line Depreciation
11.2.2. Sum-of-Years'-Digits Depreciation
11.2.3. Declining Balance Depreciation
11.3. Modified Accelerated Cost Recovery System (MACRS)
11.3.1. Cost Basis and Placed-in-Service Date
11.3.2. Property Class and Recovery Period
11.3.3. Percentage Tables
11.3.4. Where MACRS Percentage Rates (rt) Come From
11.3.5. MACRS Method Examples
11.3.6. Comparing MACRS and Historical Methods
11.4. Depreciation and Asset Disposal
11.5. Unit-of-Production Depreciation
11.6. Depletion
11.6.1. Cost Depletion
11.6.2. Percentage Depletion
11.7. Spreadsheets and Depreciation
11.7.1. Using VDB for MACRS
12. INCOME TAXES
12.1. A Partner in the Business.
12.2. Calculation of Taxable Income
12.2.1. Taxable Income of Individuals
12.2.2. Classification of Business Expenditures
12.2.3. Taxable Income of Business Firms
12.3. Income Tax Rates
12.3.1. Individual Tax Rates
12.3.2. Corporate Tax Rates
12.3.3. Combined Federal and State Income Taxes
12.3.4. Selecting an Income Tax Rate for Economy Studies
12.4. Economic Analysis Taking Income Taxes into Account
12.5. Capital Gains and Losses for Nondepreciated Assets
12.5.1. Investment Tax Credit
12.6. Estimating the After-Tax Rate of Return
12.7. After-Tax Cash Flows and Spreadsheets
13. REPLACEMENT ANALYSIS
13.1. The Replacement Problem
13.2. Replacement Analysis Decision Maps
13.3. What Is the Basic Comparison?
13.3.1. Minimum Cost Life of the Challenger
13.3.2. Use of Marginal Cost Data
13.3.3. Lowest EUAC of the Defender
13.3.4. No Defender Marginal Cost Data Available
13.3.5. Repeatability Assumptions Not Acceptable
13.3.6. A Closer Look at Future Challengers
13.4. After-Tax Replacement Analysis
13.4.1. Marginal Costs on an After-Tax Basis
13.4.2. After-Tax Cash Flows for the Challenger
13.4.3. After-Tax Cash Flows for the Defender
13.4.4. Minimum Cost Life Problems
13.5. Spreadsheets and Replacement Analysis
14. INFLATION AND PRICE CHANGE
14.1. Meaning and Effect of Inflation
14.1.1. How Does Inflation Happen?
14.1.2. Definitions for Considering Inflation in Engineering Economy
14.2. Analysis in Constant Dollars Versus Then-Current Dollars
14.3. Price Change with Indexes
14.3.1. What Is a Price Index?
14.3.2. Composite Versus Commodity Indexes
14.3.3. How to Use Price Indexes in Engineering Economic Analysis
14.4. Cash Flows That Inflate at Different Rates
14.5. Different Inflation Rates per Period
14.6. Inflation Effect on After-Tax Calculations
14.7. Using Spreadsheets for Inflation Calculations
15. SELECTION OF A MINIMUM ATTRACTIVE RATE OF RETURN
15.1. Sources of Capital
15.1.1. Money Generated from the Operation of the Firm
15.1.2. External Sources of Money
15.1.3. Choice of Source of Funds
15.2. Cost of Funds
15.2.1. Cost of Borrowed Money
15.2.2. Cost of Capital
15.3. Investment Opportunities
15.3.1. Opportunity Cost
15.4. Selecting a Minimum Attractive Rate of Return
15.5. Adjusting MARR to Account for Risk and Uncertainty
15.5.1. Inflation and the Cost of Borrowed Money
15.6. Representative Values of MARR Used in Industry
15.6.1. Spreadsheets, Cumulative Investments, and the Opportunity Cost of Capital
16. ECONOMIC ANALYSIS IN THE PUBLIC SECTOR
16.1. Investment Objective
16.2. Viewpoint for Analysis
16.3. Selecting an Interest Rate
16.3.1. No Time-Value-of-Money Concept
16.3.2. Cost of Capital Concept
16.3.3. Opportunity Cost Concept
16.3.4. Recommended Concept
16.4. The Benefit-Cost Ratio
16.5. Incremental Benefit-Cost Analysis
16.5.1. Elements of the Incremental Benefit-Cost Ratio Method
16.6. Other Effects of Public Projects
16.6.1. Project Financing
16.6.2. Project Duration
16.6.3. Project Politics
17. RATIONING CAPITAL AMONG COMPETING PROJECTS
17.1. Capital Expenditure Project Proposals
17.1.1. Mutually Exclusive Alternatives and Single Project Proposals
17.1.2. Identifying and Rejecting Unattractive Alternatives
17.1.3. Selecting the Best Alternative from Each Project Proposal
17.2. Rationing Capital by Rate of Return
17.2.1. Significance of the Cutoff Rate of Return
17.3. Rationing Capital by Present Worth Methods
17.4. Ranking Project Proposals
18. ACCOUNTING AND ENGINEERING ECONOMY
18.1. The Role of Accounting
18.1.1. Accounting for Business Transactions
18.2. The Balance Sheet
18.2.1. Assets
18.2.2. Liabilities
18.2.3. Equity
18.2.4. Financial Ratios Derived from Balance Sheet Data
18.3. The Income Statement
18.3.1. Financial Ratios Derived from Income Statement Data
18.3.2. Linking the Balance Sheet, Income Statement, and Capital Transactions
18.4. Traditional Cost Accounting
18.4.1. Direct and Indirect Costs
18.4.2. Indirect Cost Allocation
18.4.3. Problems with Traditional Cost Accounting
18.4.4. Other Problems to Watch For
Appendix A: Introduction to Spreadsheets
Donald G. Newnan, Ted G. Eschenback and Jerome P. Lavelle
Cover type: HardbackNow in a ninth edition, Engineering Economic Analysis offers comprehensive coverage of financial and economic decision-making for engineering projects, with an emphasis on problem solving, life cycle costs, and the time value of money. The spreadsheet material from the previous edition has been expanded, allowing students to create and analyze more realistic cash-flow models. The authors' concise, accessible writing style and practical emphasis make this text ideal for undergraduate engineering economy courses.
Features of the Ninth Edition
Table of Contents
1. MAKING ECONOMIC DECISIONS
1.1. A Sea of Problems
1.1.1. Simple Problems
1.1.2. Intermediate Problems
1.1.3. Complex Problems
1.2. The Role of Engineering Economic Analysis
1.2.1. Examples of Engineering Economic Analysis
1.3. The Decision-Making Process
1.3.1. Rational Decision Making
1.4. Engineering Decision Making for Current Costs
2. ENGINEERING COSTS AND COST ESTIMATING
2.1. Engineering Costs
2.1.1. Fixed, Variable, Marginal, and Average Costs
2.1.2. Sunk Costs
2.1.3. Opportunity Costs
2.1.4. Recurring and Nonrecurring Costs
2.1.5. Incremental Costs
2.1.6. Cash Costs Versus Book Costs
2.1.7. Life-Cycle Costs
2.2. Cost Estimating
2.2.1. Types of Estimate
2.2.2. Difficulties in Estimation
2.3. Estimating Models
2.3.1. Per-Unit Model
2.3.2. Segmenting Model
2.3.3. Cost Indexes
2.3.4. Power-Sizing Model
2.3.5. Triangulation
2.3.6. Improvement and the Learning Curve
2.4. Estimating Benefits
2.5. Cash Flow Diagrams
2.5.1. Categories of Cash Flows
2.5.2. Drawing a Cash Flow Diagram
2.5.3. Drawing Cash Flow Diagrams with a Spreadsheet
3. INTEREST AND EQUIVALENCE
3.1. Computing Cash Flows
3.2. Time Value of Money
3.2.1. Simple Interest
3.2.2. Compound Interest
3.2.3. Repaying a Debt
3.3. Equivalence
3.3.1. Difference in Repayment Plans
3.3.2. Equivalence Is Dependent on Interest Rate
3.3.3. Application of Equivalence Calculations
3.4. Single Payment Compound Interest Formulas
4. MORE INTEREST FORMULAS
4.1. Uniform Series Compound Interest Formulas
4.2. Relationships Between Compound Interest Factors
4.2.1. Single Payment
4.2.2. Uniform Series
4.3. Arithmetic Gradient
4.3.1. Derivation of Arithmetic Gradient Factors
4.4. Geometric Gradient
4.5. Nominal and Effective Interest
4.6. Continuous Compounding
4.6.1. Single Payment Interest Factors: Continuous Compounding
4.6.2. Uniform Payment Series: Continuous Compounding at Nominal Rate r per Period
4.6.3. Continuous, Uniform Cash Flow (One Period) with Continuous Compounding at Nominal Interest Rate r
4.7. Spreadsheets for Economic Analysis
4.7.1. Spreadsheet Annuity Functions
4.7.2. Spreadsheet Block Functions
4.7.3. Using Spreadsheets for Basic Graphing
5. PRESENT WORTH ANALYSIS
5.1. Assumptions in Solving Economic Analysis Problems
5.1.1. End-of-Year Convention
5.1.2. Viewpoint of Economic Analysis Studies
5.1.3. Sunk Costs
5.1.4. Borrowed Money Viewpoint
5.1.5. Effect of Inflation and Deflation
5.1.6. Income Taxes
5.2. Economic Criteria
5.3. Applying Present Worth Techniques
5.3.1. Useful Lives Equal the Analysis Period
5.3.2. Useful Lives Different from the Analysis Period
5.3.3. Infinite Analysis Period: Capitalized Cost
5.3.4. Multiple Alternatives
5.4. Spreadsheets and Present Worth
6. ANNUAL CASH FLOW ANALYSIS
6.1. Annual Cash Flow Calculations
6.1.1. Resolving a Present Cost to an Annual Cost
6.1.2. Treatment of Salvage Value
6.2. Annual Cash Flow Analysis
6.3. Analysis Period
6.3.1. Analysis Period Equal to Alternative Lives
6.3.2. Analysis Period a Common Multiple of Alternative Lives
6.3.3. Analysis Period for a Continuing Requirement
6.3.4. Infinite Analysis Period
6.3.5. Some Other Analysis Period
6.4. Using Spreadsheets to Analyze Loans
6.4.1. Building an Amortization Schedule
6.4.2. How Much to Interest? How Much to Principal?
6.4.3. Finding the Balance Due on a Loan
6.4.4. Pay Off Debt Sooner by Increasing Payments
7. RATE OF RETURN ANALYSIS
7.1. Internal Rate of Return
7.2. Calculating Rate of Return
7.2.1. Plot of NPW versus Interest Rate i
7.3. Rate of Return Analysis
7.3.1. Present Worth Analysis
7.3.2. Analysis Period
7.4. Spreadsheets and Rate of Return Analysis
Appendix 7A: Difficulties in Solving for an Interest Rate
8. INCREMENTAL ANALYSIS
8.1. Graphical Solutions
8.2. Incremental Rate of Return Analysis
8.3. Elements in Incremental Rate of Return Analysis
8.3.1. Incremental Analysis with Unlimited Alternatives
8.4. Present Worth Analysis with Benefit-Cost Graphs
8.5. Choosing an Analysis Method
8.6. Spreadsheets and Incremental Analysis
9. OTHER ANALYSIS TECHNIQUES
9.1. Future Worth Analysis
9.2. Benefit-Cost Ratio Analysis
9.2.1. Continuous Alternatives
9.3. Payback Period
9.4. Sensitivity and Breakeven Analysis
9.5. Graphing with Spreadsheets for Sensitivity and Breakeven Analysis
10. UNCERTAINTY IN FUTURE EVENTS
10.1. Estimates and Their Use in Economic Analysis
10.2. A Range of Estimates
10.3. Probability
10.4. Joint Probability Distributions
10.5. Expected Value
10.6. Economic Decision Trees
10.7. Risk
10.8. Risk Versus Return
10.9. Simulation
11. DEPRECIATION
11.1. Basic Aspects of Depreciation
11.1.1. Deterioration and Obsolescence
11.1.2. Depreciation and Expenses
11.1.3. Types of Property
11.1.4. Depreciation Calculation Fundamentals
11.2. Historical Depreciation Methods
11.2.1. Straight-Line Depreciation
11.2.2. Sum-of-Years'-Digits Depreciation
11.2.3. Declining Balance Depreciation
11.3. Modified Accelerated Cost Recovery System (MACRS)
11.3.1. Cost Basis and Placed-in-Service Date
11.3.2. Property Class and Recovery Period
11.3.3. Percentage Tables
11.3.4. Where MACRS Percentage Rates (rt) Come From
11.3.5. MACRS Method Examples
11.3.6. Comparing MACRS and Historical Methods
11.4. Depreciation and Asset Disposal
11.5. Unit-of-Production Depreciation
11.6. Depletion
11.6.1. Cost Depletion
11.6.2. Percentage Depletion
11.7. Spreadsheets and Depreciation
11.7.1. Using VDB for MACRS
12. INCOME TAXES
12.1. A Partner in the Business.
12.2. Calculation of Taxable Income
12.2.1. Taxable Income of Individuals
12.2.2. Classification of Business Expenditures
12.2.3. Taxable Income of Business Firms
12.3. Income Tax Rates
12.3.1. Individual Tax Rates
12.3.2. Corporate Tax Rates
12.3.3. Combined Federal and State Income Taxes
12.3.4. Selecting an Income Tax Rate for Economy Studies
12.4. Economic Analysis Taking Income Taxes into Account
12.5. Capital Gains and Losses for Nondepreciated Assets
12.5.1. Investment Tax Credit
12.6. Estimating the After-Tax Rate of Return
12.7. After-Tax Cash Flows and Spreadsheets
13. REPLACEMENT ANALYSIS
13.1. The Replacement Problem
13.2. Replacement Analysis Decision Maps
13.3. What Is the Basic Comparison?
13.3.1. Minimum Cost Life of the Challenger
13.3.2. Use of Marginal Cost Data
13.3.3. Lowest EUAC of the Defender
13.3.4. No Defender Marginal Cost Data Available
13.3.5. Repeatability Assumptions Not Acceptable
13.3.6. A Closer Look at Future Challengers
13.4. After-Tax Replacement Analysis
13.4.1. Marginal Costs on an After-Tax Basis
13.4.2. After-Tax Cash Flows for the Challenger
13.4.3. After-Tax Cash Flows for the Defender
13.4.4. Minimum Cost Life Problems
13.5. Spreadsheets and Replacement Analysis
14. INFLATION AND PRICE CHANGE
14.1. Meaning and Effect of Inflation
14.1.1. How Does Inflation Happen?
14.1.2. Definitions for Considering Inflation in Engineering Economy
14.2. Analysis in Constant Dollars Versus Then-Current Dollars
14.3. Price Change with Indexes
14.3.1. What Is a Price Index?
14.3.2. Composite Versus Commodity Indexes
14.3.3. How to Use Price Indexes in Engineering Economic Analysis
14.4. Cash Flows That Inflate at Different Rates
14.5. Different Inflation Rates per Period
14.6. Inflation Effect on After-Tax Calculations
14.7. Using Spreadsheets for Inflation Calculations
15. SELECTION OF A MINIMUM ATTRACTIVE RATE OF RETURN
15.1. Sources of Capital
15.1.1. Money Generated from the Operation of the Firm
15.1.2. External Sources of Money
15.1.3. Choice of Source of Funds
15.2. Cost of Funds
15.2.1. Cost of Borrowed Money
15.2.2. Cost of Capital
15.3. Investment Opportunities
15.3.1. Opportunity Cost
15.4. Selecting a Minimum Attractive Rate of Return
15.5. Adjusting MARR to Account for Risk and Uncertainty
15.5.1. Inflation and the Cost of Borrowed Money
15.6. Representative Values of MARR Used in Industry
15.6.1. Spreadsheets, Cumulative Investments, and the Opportunity Cost of Capital
16. ECONOMIC ANALYSIS IN THE PUBLIC SECTOR
16.1. Investment Objective
16.2. Viewpoint for Analysis
16.3. Selecting an Interest Rate
16.3.1. No Time-Value-of-Money Concept
16.3.2. Cost of Capital Concept
16.3.3. Opportunity Cost Concept
16.3.4. Recommended Concept
16.4. The Benefit-Cost Ratio
16.5. Incremental Benefit-Cost Analysis
16.5.1. Elements of the Incremental Benefit-Cost Ratio Method
16.6. Other Effects of Public Projects
16.6.1. Project Financing
16.6.2. Project Duration
16.6.3. Project Politics
17. RATIONING CAPITAL AMONG COMPETING PROJECTS
17.1. Capital Expenditure Project Proposals
17.1.1. Mutually Exclusive Alternatives and Single Project Proposals
17.1.2. Identifying and Rejecting Unattractive Alternatives
17.1.3. Selecting the Best Alternative from Each Project Proposal
17.2. Rationing Capital by Rate of Return
17.2.1. Significance of the Cutoff Rate of Return
17.3. Rationing Capital by Present Worth Methods
17.4. Ranking Project Proposals
18. ACCOUNTING AND ENGINEERING ECONOMY
18.1. The Role of Accounting
18.1.1. Accounting for Business Transactions
18.2. The Balance Sheet
18.2.1. Assets
18.2.2. Liabilities
18.2.3. Equity
18.2.4. Financial Ratios Derived from Balance Sheet Data
18.3. The Income Statement
18.3.1. Financial Ratios Derived from Income Statement Data
18.3.2. Linking the Balance Sheet, Income Statement, and Capital Transactions
18.4. Traditional Cost Accounting
18.4.1. Direct and Indirect Costs
18.4.2. Indirect Cost Allocation
18.4.3. Problems with Traditional Cost Accounting
18.4.4. Other Problems to Watch For
Appendix A: Introduction to Spreadsheets