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Engineering Economics & Finance
Lecture 1
13 Aug 2012
What is Engineering Economy?
Engineering economy is the dollar-and-cents side of decisions
that engineers make or recommend to maximize profits.
Engineering
Physical
Environment
Economic
Tutorial 2 Questions
Textbook questions (from 6th edition)
Determination of F, P, A
Q2.13: A proximity sensor attached to the top of an endoscope could reduce risks during
eye surgery by alerting surgeons to the location of critical retinal tissue. If a c
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Effects of Time and Interest
on Money
Lecture 3
From Last Lecture
Terminology & Symbols
P = present value or amount of money at time 0
Present worth (PW), present value (PV), net present value
(NPV)
F = value or amount of money at some futu
Tutorial 1 Questions
Textbook Questions (6th edition):
Basic Concepts
Q1.5. Discuss the importance of identifying alternatives in the engineering economic
process.
Equivalence
Q1.19. At what interest rate would $100,000 now be equivalent to $80,000 one ye
2.26. Find numerical value of (F/A, 19%, 20) by
a) interpolation, b) formula
(a) Interpolate between i = 18% and i = 20% at n = 20:
(F/A,18%, 20) = 146.6280
(F/A, 20%, 20) = 186.6880
19 18
x
20 18 186.6880 146.6280
Approximation
by linear interpolation
F/
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Introduction to Interests
Lecture 2
In Last Lecture
Introduction to Engineering Economy
Roles of Engineering Economy
Performing a study
Key elements & Time Value of Money
2
Interest Rates
Lenders charge borrowers interest because:
Payments f
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Gradient Series Factors
& Shifted Cash Flows
Lecture 4
In Last Lecture
To find
Given
Factor
Formula
Single-Payment Present
Worth Factor
P
F
(P/F, i%, n)
P = F(P/F, i%, n)
Single-Payment Compound
Amount Factor
F
P
(F/P, i%, n)
F = P(F/P, i%,
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Decision Making Between
Alternatives (1)
Lecture 5
Evaluating Alternatives
Alternative 1
Alternative 2
. . .
Alternative n
Choose best alternative.which one?
Engineering Economics: economic comparisons
Formulating
Engineering
economy
Estimat
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Decision Making Between
Alternatives (2)
Lecture 6
Last Lecture
Introduction to evaluating alternatives
Minimum Attractive Rate of Return
Present Worth Analysis
Equal-Life
q
Alternatives
Different-Life Alternatives
Introduction to Capitali
Tutorial 3 Questions (To be discussed on 7 Sep)
Present Worth
Equal-Life Alternatives
Non-Textbook question:
Two alternative water supply systems are being considered for a small community.
Compare the present worth of the costs of 20 years service (i.e.,