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Summary
Economic and Financial Analysis for Engineering and Project Management is for engineers and others who must analyze the financial and economic ramifications of producing and sustaining capital projects. Unlike other books in the field, it offers straightforward and lucid explanations of all main formulas needed to carry out financial analyses. The math is kept simple and is fully explained, making the book accessible to non-technical personnel. Numerous sample problems are provided, and can be worked on standard spreadsheet programs, as well as using interest rate tables. The book shows how to link quantitative data to management decisions and to standard reporting forms and has been designed for practicing engineers and students alike.Economic and Financial Analysis for Engineering and Project Management is a "must have" for graduate students in engineering management departments; graduate and undergraduates taking courses in project management, engineering economics, and engineering finance. Practicing engineers will find this book THE handy reference for any project involving financial analyses.
Table of Contents
| Preface | p. ix |
| Acknowledgment | p. xiii |
| Financial Analysis and Choice of Alternatives | |
| Introduction | p. 3 |
| Costs and Benefits | p. 4 |
| Importance of Time (Time Value of Money) | p. 5 |
| Interest Rate | p. 6 |
| Continuous Compounding of Interest | p. 7 |
| Effective Rate of Interest | p. 7 |
| Nominal Interest Rate | p. 8 |
| Equivalence | p. 9 |
| Cash Flow Diagram | p. 10 |
| Inclusion of Nonmonetary Costs and Benefits | p. 13 |
| Importance of Cash Flow Diagram | p. 13 |
| The Process of Decision Making | p. 15 |
| Financial Analysis Methods | p. 16 |
| Derivation of the Formulae | p. 16 |
| Problems | p. 17 |
| Present Worth | p. 19 |
| Present Value (PV) | p. 19 |
| Net Present Worth | p. 20 |
| Present Value of Uniform Annual Series | p. 20 |
| Present Value of Arithmetic Gradient Series | p. 25 |
| Multiple Alternatives and Equalizing Lives | p. 28 |
| Exclusivity | p. 29 |
| Problems | p. 34 |
| Future Worth | p. 39 |
| Future Value (FV) | p. 39 |
| Future Value of Uniform Annual Series | p. 40 |
| Multiple Alternatives | p. 42 |
| Problems | p. 43 |
| Annual Worth | p. 45 |
| Annual Worth and Equivalent Uniform Annual Worth | p. 45 |
| Important Point | p. 48 |
| EUAW of an Arithmetic Gradient | p. 49 |
| Multiple Projects | p. 50 |
| Problems | p. 51 |
| Rate of Return | p. 55 |
| Rate of Return | p. 55 |
| Multiple Alternatives and Incremental Analysis | p. 57 |
| Multiple Rates of Return | p. 63 |
| Problems | p. 64 |
| Benefit-Cost Ratio and Payback Methods | p. 67 |
| Benefit-Cost Ratio | p. 67 |
| Equalizing Lives and Incremental Analysis | p. 68 |
| Payback | p. 71 |
| Multiple Alternatives | p. 72 |
| Problems | p. 73 |
| Inflation | p. 75 |
| Inflation and Purchasing Power | p. 75 |
| Inflation and Interest Rate Combined | p. 76 |
| Inflation Adjusted Discount Rate | p. 78 |
| Deflation | p. 79 |
| General Inflation Indices | p. 80 |
| Problems | p. 81 |
| Tax and Depreciation | p. 83 |
| Effects of Income Tax | p. 83 |
| Depreciation, Book Value, and Capital Gain | p. 85 |
| Straight-Line Depreciation | p. 85 |
| Double Declining Balance (DDB) Depreciation | p. 87 |
| Modified Accelerated Cost Recovery System (MACRS) Depreciation | p. 89 |
| Sum of Years Digit (SOYD) Depreciation | p. 90 |
| Change of Depreciation Methods | p. 91 |
| Amortization and Depletion | p. 91 |
| Financial Analysis with Tax and Depreciation | p. 92 |
| Problems | p. 96 |
| General Comments on Financial Analysis and Problem Solving | p. 101 |
| Applicability of Different Methods | p. 101 |
| Analyzing Financial Structure of an Investment | p. 103 |
| General Structure of Problems | p. 103 |
| Extra Problems | p. 106 |
| Lifetime Worth (LTW) Estimation and Calculation | |
| Lifetime Worth: Background and Definitions | p. 115 |
| Background | p. 115 |
| Life | p. 117 |
| System Life | p. 117 |
| Physical Life | p. 118 |
| Technological Life | p. 118 |
| Economic Life | p. 118 |
| Life of Interest and Planning Horizon | p. 119 |
| Phases of the Lifetime | p. 119 |
| Concept Formation | p. 120 |
| Conceptual Design and Development | p. 121 |
| Design, Engineering, Prototyping, and Test | p. 121 |
| Manufacturing, Test, Packaging, and Delivery | p. 121 |
| Installation, Operation, and Maintenance | p. 124 |
| Removal, Salvage, or Resale | p. 124 |
| Concurrent Engineering | p. 124 |
| Problems | p. 125 |
| Lifetime Estimation and Calculation | p. 127 |
| The Cash Flow Diagram | p. 127 |
| Work and Cost Breakdown Structure (WBS-CBS) | p. 129 |
| Lifetime Worth Calculation | p. 130 |
| Lifetime Cost Estimation | p. 135 |
| Parametric Estimation | p. 136 |
| Comparative Estimation | p. 138 |
| Engineering Estimation | p. 139 |
| Combination of the Estimating Methods | p. 140 |
| Estimation Accuracy | p. 140 |
| Universal Ratios | p. 141 |
| Problems | p. 142 |
| Ltw of Software System | p. 145 |
| Introduction | p. 145 |
| Software Development Process | p. 145 |
| Requirements Analysis | p. 146 |
| Preliminary Design | p. 146 |
| Detailed Design | p. 147 |
| Implementation | p. 147 |
| System Test and Acceptance | p. 148 |
| Software Estimation | p. 148 |
| Retirement and Replacement | |
| Retirement and Replacement: Introduction and Definitions | p. 155 |
| Introduction | p. 155 |
| Retirement | p. 155 |
| Opportunity Cost | p. 157 |
| Replacement | p. 158 |
| Problems | p. 160 |
| Replacement Decision Making | p. 161 |
| Replacement Philosophy | p. 161 |
| Economic Life and Continuous Replacement | p. 163 |
| Computer Determination of the Economic Life | p. 171 |
| Depreciation and Tax | p. 174 |
| Replacement Process | p. 179 |
| More About Replacement | p. 186 |
| Prior Knowledge of Replacement Time | p. 186 |
| Problems | p. 189 |
| Proof of the Formulae | p. 195 |
| Compound Interest Tables | p. 197 |
| Index | p. 219 |
| About the Author | p. 221 |
| Table of Contents provided by Syndetics. All Rights Reserved. |
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