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Engineering Economy

Students will explore economic principles applied to engineering decisions, including cost estimation, budgeting, and economic analysis for project evaluation. The course will help students understand how to assess the financial viability of engineering projects. The outcome is the ability to make informed, cost-effective decisions in engineering design and operations.


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  • Role of Engineering Economy
  • How Time and Interest Affect Money
  • Single-Amount Factors (F/P and P/F)
  • Uniform Series Present Worth and Capital Recovery Factor (P/A and A/P)
  • Sinking Fund Factor and Uniform Series Compound Amount Factor (A/F and F/A)
  • Interpolation in Interest Tables
  • Nominal and Effective Interest Rates
  • Effective Annual Interest Rates
  • Effective Interest Rates for Any Time Period
  • Effective Interest Rate for Continuous Compounding
  • Interest Rates that Vary over Time
  • Formulating Alternatives
  • Present Worth Analysis of Equal-Life Alternatives
  • Present Worth Analysis of Different-Life Alternatives
  • Future Worth Analysis
  • Capitalized Worth Analysis
  • Advantages and Uses of Annual Worth Analysis
  • Capital Recovery Calculation using Annual Worth Values
  • Evaluating Alternatives by Annual Worth Analysis
  • Interpretation of Rate of Return Value
  • Rate of Return for One Alternative
  • Rate of Return for Multiple Alternatives
  • Public Sector Projects
  • Benefit/Cost Analysis of a Single Project
  • Alternative Selection Using Incremental B/C Analysis
  • Incremental B/C Analysis of Multiple, Mutually Exclusive Alternatives
  • Service Sector Projects and Cost-Effectiveness Analysis

  • MARR Relative to the Cost of Capital
  • Debt-Equity Mix and Weighted Average Cost of Capital
  • Determination of the Cost of Debt Capital
  • Determination of the Cost of Equity Capital and the MARR
  • Effect of Debt-Equity Mix on Investment Risk
  • Impact of Inflation
  • Present Worth Calculations Adjusted for Inflation
  • Future Worth Calculations Adjusted for Inflation
  • Capital Recovery Calculations Adjusted for Inflation

  • Understanding How Cost Estimation is Accomplished
  • Unit Method & Cost Indexes
  • Cost Capacity Relationship: Cost-Capacity Equations
  • Cost Capacity Relationship: Factor Method
  • Traditional Indirect Cost Rates and Allocation
  • Activity-Based Costing for Indirect Costs
  • Terminology of Depreciation
  • Straight Line (SL) Depreciation
  • Declining Balance (DB) and Double Declining Balance (DDB)
  • Modified Accelerated Cost Recovery System (MACRS)
  • MACRS Recovery Period
  • Sum-of-Year-Digits (SYD) Depreciation
  • Income Tax Terminology and Basic Relations
  • Befor and After Tax Cash Flow
  • Effect of Taxes of Different Depreciation Methods and Recovery Periods
  • Depreciation Recapture and Capital Gains
  • Determining Sensitivity to Parameter Variation
  • Sensitivity Analysis Using Three Estimates
  • Estimate Variability and the Expected Value
  • Expected Value Computations for Alternatives

References:

  1. Blank, L., & Tarquin, A. (2012). Engineering Economy (7th ed.). McGraw-Hill.
  2. Sullivan, W. G., Wicks, E. M., & Koelling, C. P. (2015). Engineering Economy (16th ed.). Pearson Education.