Engineering economics: financial decision making for engineers

553 Pages·2013·5.03 MB·English

by  Fraser, Niall Morris;Jewkes, Elizabeth Marie

List of Symbols
(A/F,i,N) sinking fund factor BV (n) book value at end of period
sl
nusing straight-line
(A/G,i,N) arithmetic gradient method
toannuity conversion
factor C present worth of costs
(A/P,i,N) capital recovery factor CCA capital cost allowance
(F/A,i,N) uniform series compound CSF capital salvage factor
amount factor
CTF capital tax factor
(F/P,i,N) compound amount factor
d depreciation rate for
(P/A,g,i,N) geometric gradient to declining-balance method
present worth conversion
factor Ddb(n) depreciation amount for
period nusing declining-
(P/A,i,N) series present worth factor balance method
(P/F,i,N) present worth factor D (n) depreciation amount for
sl
period nusing straight-line
A annuity amount, equivalent method
annual cost
EAC equivalent annual cost
A current dollars in year N
C
ERR external rate of return
A total annuity for arithmetic
tot
gradient to annuity E(X) expected value of the
conversion factor random variable, X
A(cid:2) base annuity for arithmetic F future value, future worth
gradient to annuity
conversion factor f inflation rate per year
AW annual worth FW future worth
B present worth of benefits g growth rate for geometric
gradient
BCR benefit–cost ratio
i current interest rate
BCRM modified benefit–cost ratio
I interest amount
BV (n) book value at end of period
db nusing declining-balance i(cid:2) real interest rate
method
I compound interest amount
c
i effective interest rate N number of periods, useful
e
life of an asset
i interest rate per subperiod
s
P present value, present
Is simple interest amount worth, purchase price,
principal amount
i° growth adjusted interest rate
PW present worth
IRR internal rate of return
p(x) probability distribution
IRR current dollar IRR
C
Pr{X=x} alternative expression of
IRR real dollar IRR i
R probability distribution
i* internal rate of return
r nominal interest rate, rating
for a decision matrix
i* external rate of return
e
R real dollar equivalent to A
i* approximate external rate 0,N N
ea relative to year 0, the base
of return
year
I the value of a global price
0,N S salvage value
index at year N, relative to
year 0
t tax rate
m number of subperiods in
UCC undepreciated capital cost
a period
X random variable
MARR minimum acceptable rate
of return π Laspeyres price index
01
MARR current dollar MARR
C
MARR real dollar MARR
R

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Library and Archives Canada Cataloguing in Publication
Engineering economics : financial decision making for engineers / Niall M. Fraser, Elizabeth M.
Jewkes.—5th ed.
First-3rd eds. publ. under title: Engineering economics in Canada.
4th ed. publ. under title: Global engineering economics.
Includes bibliographical reference and index.
ISBN 978-0-13-237925-0
1. Engineering economy. I. Fraser, Niall M. (Niall Morris),
1952– II. Jewkes, Elizabeth M. (Elizabeth Marie), 1958-
TA177.4.F725 2012 658.15 C2011-906926-1
ISBN 978-0-13-237925-0
Brief Contents
Preface xiii
CHAPTER 1 Engineering Decision Making 1
CHAPTER 2 Time Value of Money 18
CHAPTER 3 Cash Flow Analysis 45
Appendix 3A Derivation of Discrete Compound Interest Factors 81
CHAPTER 4 Comparison Methods Part 1 85
Appendix 4A The MARR and the Cost of Capital 122
CHAPTER 5 Comparison Methods Part 2 125
CHAPTER 6 Depreciation and Financial Accounting 163
Appendix 6A Cost Estimation 207
CHAPTER 7 Replacement Decisions 215
CHAPTER 8 Taxes 263
Appendix 8A Deriving the Capital Tax Factor 301
CHAPTER 9 Inflation 304
Appendix 9A Computing a Price Index 338
CHAPTER 10 Public Sector Decision Making 342
CHAPTER 11 Project Management 387
CHAPTER 12 Dealing With Uncertainty and Risk 424
Appendix 12A Decision Matrices 471
CHAPTER 13 Qualitative Considerations and Multiple Criteria COMPANIONWEBSITE
APPENDIX A Compound Interest Factorsfor Discrete Compounding, Discrete
Cash Flows 477
APPENDIX B Answers to Selected Problems 501
Glossary 507
Photo Credits 515
Index 517
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Contents
Preface xiii
CHAPTER 1 Engineering Decision Making 1
Engineering Economics in Action, Part 1A: Naomi Arrives 2
1.1 Engineering Decision Making 2
1.2 What Is Engineering Economics? 3
1.3 Making Decisions 4
Engineering Economics in Action, Part 1B: Naomi Settles In 5
1.4 Dealing With Abstractions 6
1.5 The Moral Question: Three True Stories 9
NET VALUE 1.1: PROFESSIONAL ENGINEERING ASSOCIATIONS 11
1.6 Uncertainty and Sensitivity Analysis 11
1.7 How This Book Is Organized 12
Engineering Economics in Action, Part 1C: A Taste of What Is to Come 13
Problems 14
Mini-Case 1.1: R. v. Syncrude Canada Ltd. 16
CHAPTER 2 Time Value of Money 18
Engineering Economics in Action, Part 2A: A Steal For Steel 19
2.1 Introduction 19
2.2 Interest and Interest Rates 19
NET VALUE 2.1: PRIME INTEREST RATES 20
2.3 Compound and Simple Interest 22
2.4 Effective and Nominal Interest Rates 25
2.5 Continuous Compounding 28
2.6 Cash Flow Diagrams 29
2.7 Equivalence 32
2.7.1 Mathematical Equivalence 32
2.7.2 Decisional Equivalence 32
2.7.3 Market Equivalence 33
Review Problems 34
Summary 38
Engineering Economics in Action, Part 2B: You Just Have to Know When 38
Problems 39
Mini-Case 2.1: Student Credit Cards 44