Chapter 2 - Cost Terminology and Design
Economics
SEEM2440A/B
Chapter 2 - Cost terminology and design economics
Cost terminology
Fixed, variable, and incremental costs
Fixed costs that remain constant over a specic range of
operating conditions. It is sub

Chapter 8
1. An investor established an individual savings account in 1991 that in volves a
series of 20 deposits as shown in the accompanying figure.
The account is expected to compound at an average interest rate of 12% per year
through the year 2011. G

SEEM 2440A/B - ENGINEERING ECONOMICS
First term (2010 2011)
Assignment 3
Due: 5:00 p.m., 2-Nov-2010
Important notes:
1. You must submit your assignment on time. No late assignment will be accepted.
2. You must drop your assignment into the assignment coll

SEEM 2440A/B ENGINEERING ECONOMICS
First Term (2010 2011)
Assignment 3
Solution
1. (4-13) You just inherited $25,000. While you plan to squander some of it away, how
much should you deposit in an account earning 4% interest per year if youd like to have
$

SEEM 2440A/B ENGINEERING ECONOMICS
First Term (2010 2011)
Assignment 4
Solution
1. (4-103) Determine the current (time 0) amount of money that must be invested at
12% nominal interest, compounded monthly, to provide an annuity of $10,000 per
year for 6 ye

SEEM 2440 Engineering Economics
Tutorial 11
LEI, Tian
Summary:
MACRS (GDS) with Half-Year Convention
o
o
Case 1: Study period (N) > MACRS Recovery Period (M)
The asset is disposed of after the full recovery period;
r B 1 k M +1
dk = k
.
M +1< k N
0
Cas

SEEM 2440 Engineering Economies
Tutorial 10
Chris Chan
Summary
Chapter 6 : Comparing Alternative Projects (with Study period useful life)
Two scenarios
(i)
Study Period Useful Life
(ii)
Useful Life Study Period
Case 1 : Study Period Useful Life
Repeatabil

SEEM 2440 Engineering Economies
Tutorial 9
Chris Chan
Summary
Comparing Alternative Projects (with Study period = useful life)
Two types of decisions
(i)
(ii)
Investment alternatives
Cost alternatives
Two methods to evaluate the Alternative Projects
(i)
(

SEEM 2440 Engineering Economy
Tutorial 8
Jiang Bo
Summary
Methods to evaluate profitability:
(i)Present Worth (PW)
(ii)Future Worth (FW)
(iii)Annual Worth (AW)
(iv)Internal Rate of Return (IRR)
Let ( x0 , x1 , x 2 , L , x n ) be a cash flow stream. Then t

SEEM 2440 Engineering Economy
Tutorial 7
Jiang Bo
Summary
Nominal and effective interest rates.
They are related by:
r
i = (1 + ) M 1 , discrete case;
M
i = e r 1 , continuous case.
Where
i: effective interest rate per period;
r: nominal interest rate per

Summary of Chapter 4: Time Value of Money
Time value
Logic behind
Investor point of view:
Opportunity cost
Risk
Opportunity
Under Same risk
Cost = 10%
Lender
Project A
10%
Project B
Borrower
(Best
Alternatives)
5%
Decision making on investment:
Key Step
1

Tutorial notes
Brian Lee hclee@se.cuhk.edu.hk
Linear Regression
y
Logic behind
( xi , yi )
ei
y = b0 + b1 x
*(y = mx +c)
m = slope, c = intercept
x
n
How to Proof? Intuition Minimize
e
i =1
i
2
(Interested reader can easily find the proof
online!)
Example

Summary
SEM2440 Engineering Economy Tutorial
Examples
LAI, Minghui Steven
Mobil: 53030720
Oce: ERG 709D
Home Page
October 3, 2010
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1.
Summary
1.1.
Chapter 2 Present Economy Studies (Continued)
Summary

SEG2440 Engineering Economy
Tutorial 1
By Liu, Yanchu
Summary
Principles of Engineering Economics
Develop the alternatives (Be creative and innovative)
Focus on the differences (Common outcomes are irrelevant)
Use a consistent viewpoint (Usually that of t

Summary
SEM2440 Engineering Economy Tutorial
Examples
LAI, Minghui Steven
September 30, 2010
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1.
Summary
1. Break-even Analysis Two Models in the Perfect Monopoly
economic environment and th

1-3
Some non-monetary factors (attributes) that might be important are:
1-13
(a)
Safety
Reliability (from the viewpoint of user service)
Quality in terms of consumer expectations
Aesthetics (how it looks, and so on)
Patent considerations
Problem A: Subjec

SEEM 2440 Engineering Economies
Solutions for Tutorial 10
Chris Chan
1. Use the PW method.
Since the useful life of 5 cm is greater than study period of 4 years, we have to truncate the
alternative. First we calculate the market value of 5cm at the end of

Solution to Exercises in Tutorial 7
Problem 1:
a. For 4.5% interest rate:
30 years x 12 months = 360 payments
4.5% APR / 12 = monthly rate of .375 %
F30 = $500 (F/A, 0.375%, 360)
(1 + 0.00375) 360 1
= $500 [
] = $500 (759.3861)
0.00375
= $379,693
b. F in

SEEM 2440A/B ENGINEERING ECONOMICS
First Term (2010 2011)
Assignment 6
Solution
1. A = $1,000; N = 10
(a)
f = 6% per year; ir = 4% per year
In Part (a), the $1,000 is an A$ uniform cash flow (annuity)
ic = 0.04 + 0.06 + (0.04)(0.06) = 0.1024, or 10.24% pe

SEEM 2440A/B - ENGINEERING ECONOMICS
First term (2010 2011)
Assignment 2 (Solution)
Due date: 19, October, 2010
Important notes:
1. You must submit your assignment on time. No late assignment will be accepted.
2. You must drop your assignment into the ass

SEEM 2440A/B Engineering Economics
First term, 2010 11
Midterm Examination (Solution)
Question 1
(a)
Use the linear regression formula,
5
b
5
i 1
i 1
i 1
5 Qi2 Qi
i 1
i 1
5
5
5
a
5
5 Qi Pi Qi Pi
i 1
5(315,691) (1,050)(1,542.2)
0.19
5(263,100) (1,050)

SEEM 2440
2009 -10 Final Examination
Numerical Answer
IMPORTANT:
It is just a numerical answer. In the examination, you MUST show detailed steps
to get credits. Without steps, without credits.
Question 1
Rank order is DN I II III IV
Taking the DN as the f

Chapter 9 - Public Projects and Benet-Cost
Ratio Method
SEEM2440A/B
Chapter 9 - Public Projects and Benet-Cost Ratio Method
Public projects and benet-cost ratio method
The project evaluation and selection methods we have learned
so far are directed toward

Chapter 8 - Price Changes
SEEM2440A/B
Chapter 8 - Price Changes
Ination/Deation
In real life, prices of most goods and services change over time.
An increase in price is dened as "price ination" and a
decrease is dened as "price deation". In the case of i

Chapter 7 - Depreciation and Income Taxes
SEEM2440A/B
Chapter 7 - Depreciation and Income Taxes
Depreciation Concepts and Terminology
Taxes are important for engineering economic analysis
because they represent signicant cash outow that may
alter the nal

Chapter 6 - Comparison and Selection among
Alternatives
SEEM2440A/B
Chapter 6 - Comparison and selection among alternatives
Comparing Alternative Projects
In Chapter 5, we learned how to evaluate the economic
protability (acceptability) of a single altern

Chapter 5 - Evaluating a Single Project
SEEM2440A/B
Chapter 5 - Evaluating a single project
Time value of money - Applications
We will learn how to evaluate the protability and liquidity of a
single problem solution (or alternative). Minimum Attractive
Ra