## Preface

This book is about Engineering Economics which is a subset of microeconomics. It covers the economics and financial analyses needed to assess the viability of proj ects and to choose the best among many. As such it is relevant not only to engineers but also to anyone who needs to make an investment decision. For the past six years, its contents have been used as teaching material for over 400 hundred students in many disciplines ranging from electrical and mechanical engineering to information...

## Example

Let us see what the ROR is for the problem of Example 2.1 using the netted cash flow diagram. Assuming an unknown interest rate i*, we can write the NPW as NPW - -24000 4(500 (P A, i*. 3) > -19600 (P F, 4) By definition ROR is the interest rate that makes NPW 0. To determine ROR, we have to try several values for i* and see which one makes NPW 0. If the value of ROR is higher than the MARR, then the project is good. Calculation of i* from the above equation is not easy, and we have to use...

## Importance of Cash Flow Diagram

The cash flow diagram is the most important and essential element of financial analysis. A proper and accurate cash flow diagram should be constructed and tested before an attempt is made to perform the financial analysis. Indeed, with today's special handheld calculators and personal computer spreadsheets, the financial analysis is completed very quickly without much financial knowledge required on the part of the operator. But, the construction of a cash flow diagram requires a deep...

## EUAC of initial ist AP L

Ell AW for a one-year life - 400O0 Calculate the annual net income after tax (IAT) for years 1 and 2. This is the tax due to the operating income. Now we have to calculate the effect of capital gain or loss. Year Resale Book Value Capital Gain Loss Tax On Cap G L EUAC of initial cost - 500000 (A P, 8. 2) - 2B0400 EUAC of initial cost - 500000 (A P, 8. 2) - 2B0400 EUAB of operation 130000 (P F, S,t) +112000 (P F, 3, 2)) (A P, S. 2) -I2134S EUAB of resale - 270000 (A F, 3,2) -129816 We have to...

## Annual Worth and Equivalent Uniform Annual Worth

The annual worth is the net of all the benefits and costs incurred over a one-year period. Therefore, we present the net of all the different benefits and costs incurred at different points of time in a one-year period with one number, and we call it the annual worth. For a system whose life is longer than one year, this number will be different for different years. For systems having more than one year of life, we can calculate a single virtual number that represents an equivalent annual net...

## EUAW of an Arithmetic Gradient

The EUAW of a gradient is calculated by equation 4.2a or expression 4.2b, where G is the gradient. The spreadsheet calculation is exactly as in Example 4.3. An employee with an annual pay of 30,000 is told he is going to get an annual pay increase of 1,200 each year. The increase starts in the second year of his employment. What is the EUAW of his increase for the first five years at an assumed interest rate of 7 From the interest rate tables, we can obtain A G for i 7 and n 5 to be The...