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Ch1-Lecture_Notes

Ch1-Lecture_Notes - 1 Sources for Project Websites...

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Sources for Project Websites Newspapers Magazines
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Course Text Overview Level 1 This is How It All Starts Chapter 1: Foundations of Engineering Economy Chapter 2: Factors: How Time and Interest Affect Money Chapter 3: Combining Factors Chapter 4: Nominal and Effective Interest Rates Level 2 Tools for Evaluating Alternatives Chapter 5: Present Worth Analysis Chapter 6: Annual Worth Analysis Chapter 7: Rate of Return Analysis: Single Alternative Chapter 8: Rate of Return Analysis: Multiple Alternatives Chapter 9: Benefit/Cost Analysis and Public Sector Economics Level 3 Making Decisions on Real-World Projects Chapter 11: Replacement and Retentions Decisions Level 4 Rounding Out the Study Chapter 14: Effects of Inflation Chapter 17: After-Tax Economic Analysis Chapter 18: Formalized Sensitivity Analysis and Expected Value Decisions Appendix A Using Spreadsheets and Microsoft Excel Appendix B Basics of Accounting Reports and Business Ratios Appendix C: Comparing Economic Alternatives (from Gottfried's, Spreadsheet Tools for Engineers Using Excel) Bibliography Compound Interest Factor Tables 10
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CHAPTER I FOUNDATIONS OF ENGINEERING ECONOMY
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Why Engineering Economy is Important to Engineers Engineers must be concerned with the economic  aspects of designs and projects they recommend and  perform Engineers must work within the realm of economics  and justification of engineering projects Work with limited funds  Capital is not unlimited Capital does not belong to the firm Belongs to the Owners of the firm Capital is not “free”…it has a “cost” 12
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Role of Engineering Economy in Decision Making Engineering Economy is a set of tools that aid in  decision making – but will not make the decision for  you Engineering economy is based mainly on estimates  of future events – must deal with the future and risk  and uncertainty The parameters within an engineering economy  problem can and will vary over time Sensitivity Analysis 13
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Problem Solving Approach 1. Understand the Problem 2. Collect all relevant data/information 3. Define the feasible alternatives 4. Evaluate each alternative 5. Select the “best” alternative 6. Implement and monitor 14
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Time Value of Money Time Value of Money Money can “make” money  if Invested The change in the amount of money over  a given time period is called the  time  value of money The most important concept in  engineering economy 15
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Performing a Study To have a problem, one must have alternatives (two  or more ways to solve a problem) Estimate the cash flows for the alternatives Analyze the cash flows for each alternative To analyze must have: Concept of the time value of $$ An Interest Rate Some measure of economic worth Evaluate and weigh Select, implement, and monitor 16
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Ch1-Lecture_Notes - 1 Sources for Project Websites...

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