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Fundamentals ofEngineering EconomicsEdited by Kal Renganathan SharmaIncluded in this preview: Copyright Page Table of Contents Excerpt of Chapter 1For additional information on adopting this book foryour class, please contact us at 800.200.3908 x501or via e-mail at info@cognella.com

Fundamentals of EngineeringEconomicsBy Kal Renganathan SharmaPrairie View A&M University

ContentsDedication ixxiAbout the Author Preface xiiiCopyright 2011 University Readers Inc. All rights reserved. No part of this publication may be reprinted,reproduced, transmitted, or utilized in any form or by any electronic, mechanical, or other means, now known orhereafter invented, including photocopying, microfilming, and recording, or in any information retrieval systemwithout the written permission of University Readers, Inc.First published in the United States of America in 2011 by Cognella, a division of University Readers, Inc.Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used onlyfor identification and explanation without intent to infringe.15 14 13 12 1112345Printed in the United States of AmericaISBN: 978-1-60927-826-7CHAPTER 1.0 Overview of Engineering Economy1.1 What is Engineering, What is Economy and What is Engineering Economy ? Example 1.0 Start of Technocrats of Texas 1.2 Seven Principles of Engineering Economy 1.3 Summary 1.4 References 1.5 Exercises 1CHAPTER 2.0 Fixed and Variable Costs2.1 One Time and Recurring Costs 2.2 Life Cycle of an Enterprise 2.3 Total Revenue, Total Cost and Profitable Region Example 2.1 Garlic Nibbler Snack Factory 2.4 Giffen and Veblen Goods Example 2.2 Japanese Robots Example 2.3 Lawnmovers from China 2.5 Dualistic Relations 2.6 Summary 2.7 References 2.8 Exercises 9144566910111215151719232428

ContentsDedication ixxiAbout the Author Preface xiiiCopyright 2011 University Readers Inc. All rights reserved. No part of this publication may be reprinted,reproduced, transmitted, or utilized in any form or by any electronic, mechanical, or other means, now known orhereafter invented, including photocopying, microfilming, and recording, or in any information retrieval systemwithout the written permission of University Readers, Inc.First published in the United States of America in 2011 by Cognella, a division of University Readers, Inc.Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used onlyfor identification and explanation without intent to infringe.15 14 13 12 1112345Printed in the United States of AmericaISBN: 978-1-60927-826-7CHAPTER 1.0 Overview of Engineering Economy1.1 What is Engineering, What is Economy and What is Engineering Economy ? Example 1.0 Start of Technocrats of Texas 1.2 Seven Principles of Engineering Economy 1.3 Summary 1.4 References 1.5 Exercises 1CHAPTER 2.0 Fixed and Variable Costs2.1 One Time and Recurring Costs 2.2 Life Cycle of an Enterprise 2.3 Total Revenue, Total Cost and Profitable Region Example 2.1 Garlic Nibbler Snack Factory 2.4 Giffen and Veblen Goods Example 2.2 Japanese Robots Example 2.3 Lawnmovers from China 2.5 Dualistic Relations 2.6 Summary 2.7 References 2.8 Exercises 9144566910111215151719232428

CHAPTER 3.0 Time Worth of Money3.1 Simple and Compound Interest Example 3.1 Compound Interest Calculated on an Every Day Basis 3.1.2 Effective Interest Rate 3.2 Uniform Series of Payments 3.2.1 Given A, i and N Find F Example 3.2 Doubling Time of Investment 3.2.2 Given A, i and N, Find P Example 3.3 Perpetual Payment and Fathers’ Day Prize Example 3.4 0% Interest Rate Example 3.5 Nest Egg of Alice Smith Example 3.6 Diversified Portfolio Example 3.7 George Tataseo’s Royalty Payments and Investment 3.2.3 Given F, i and A, Find N 3.2.4 Given P, i and A, Find N 3.2.5 Given F, A and N, Find i 3.2.6 Given P, A and N, Find i Example 3.8 U-Pay now & I-Pay Later Example 3.9 When does a Micro-Power plant become a more attractive investment? 3.3 Uniform Gradient Series of Payments 3.4 Continuous Compounding 3.4.1 F/P, F/A, P/A, A/F, A/P for Continuous Compounding Example 3.10 Continuous Compounding 3.4.2 Given F, A, i’ Find N During Continuous Compounding Example 3.11 Time Taken to Achieve Investment Goal Example 3.12 Biodiesel Production from Waste Cooking Oil Example 3.13 Credit Card Debt of all US Households Example 3.14 Time Taken to Pay off Credit Card Debt Example 3.15 Deferred Annuity 3.5 Summary 3.6 References 3.7 Exercises 29CHAPTER 4.0 Five Methods for Evaluation of Capital Project4.1 Overview 4.2 Present Worth Analysis, PW Example 4.1 Hydrogen from Fast Pyrolysis and Steam Reforming Example 4.2 Replacement for WTC, World Trade Center Example 4.3 Capitalized Worth of Stone’s Replacement for WTC 4.3 Future Worth Analysis, FW Example 4.4 University Apartments 4950505051525257585859606060Example 4.5 Present Worth of a Sugar Mill Example 4.6 Invest in Gold or Stock Market Example 4.7 Electric/Gas Hybrid Vehicle Example 4.8 Effect of Inflation on PW Example 4.9 Life-Cycle Cost Analysis of HVAC Systems Example 4.10 Municipal Garbage Collection Truck Example 4.11 Hexane Extraction of Rice-Bran Oil 4.4 Annual Worth Analysis, AW Example 4.12 Annual Worth, AW of a Bio-Diesel Plant in Taiwan Example 4.13 Debt Consolidation Example 4.14 Solar Panel 4.5 IRR, Internal Rate of Return Example 4.15 Profitability of Liquefaction Plants Example 4.16 Ethanol Production by Fermentation 4.6 ERR, External Rate of Return 4.7 Payback Period Example 4.17 Copper-Chlorine Thermochemical Cycles for Hydrogen Production 4.6 Summary 4.7 References 4.8 Exercises CHAPTER 5.0 Comparison of Alternates and Decision Analysis5.1 Overview Example 5.1 Best Process to Manufacture CNTs, Carbon Nanotubes Example 5.2 Cost Savings by using Microfiltration Pre-Treatment during SWRO, Sea Water Reverse OsmosisExample 5.3 Bioethanol from Sugarcane Bagasse Example 5.4 Sequestration by Dimethyl Carbonate Formation 5.2 Study Period – Don’t Compare an Apple and an Orange Example 5.5 Life Cycle Cost of Photocopier Example 5.6 LED Lighting 5.3 Equivalent Worth Method Example 5.7 Anti-Allergic Cream 5.4 Optimization Example 5.8 Optimal Number of Effects in Multiple Effect Evaporator 5.5 Houshold Finances Example 5.8 Refinancing of Steve Gandhi Example 5.9 Toyota National Clearance 5.6 Summary 5.7 References 5.8 Exercises 989999101102103104106107106109112113114

CHAPTER 3.0 Time Worth of Money3.1 Simple and Compound Interest Example 3.1 Compound Interest Calculated on an Every Day Basis 3.1.2 Effective Interest Rate 3.2 Uniform Series of Payments 3.2.1 Given A, i and N Find F Example 3.2 Doubling Time of Investment 3.2.2 Given A, i and N, Find P Example 3.3 Perpetual Payment and Fathers’ Day Prize Example 3.4 0% Interest Rate Example 3.5 Nest Egg of Alice Smith Example 3.6 Diversified Portfolio Example 3.7 George Tataseo’s Royalty Payments and Investment 3.2.3 Given F, i and A, Find N 3.2.4 Given P, i and A, Find N 3.2.5 Given F, A and N, Find i 3.2.6 Given P, A and N, Find i Example 3.8 U-Pay now & I-Pay Later Example 3.9 When does a Micro-Power plant become a more attractive investment? 3.3 Uniform Gradient Series of Payments 3.4 Continuous Compounding 3.4.1 F/P, F/A, P/A, A/F, A/P for Continuous Compounding Example 3.10 Continuous Compounding 3.4.2 Given F, A, i’ Find N During Continuous Compounding Example 3.11 Time Taken to Achieve Investment Goal Example 3.12 Biodiesel Production from Waste Cooking Oil Example 3.13 Credit Card Debt of all US Households Example 3.14 Time Taken to Pay off Credit Card Debt Example 3.15 Deferred Annuity 3.5 Summary 3.6 References 3.7 Exercises 29CHAPTER 4.0 Five Methods for Evaluation of Capital Project4.1 Overview 4.2 Present Worth Analysis, PW Example 4.1 Hydrogen from Fast Pyrolysis and Steam Reforming Example 4.2 Replacement for WTC, World Trade Center Example 4.3 Capitalized Worth of Stone’s Replacement for WTC 4.3 Future Worth Analysis, FW Example 4.4 University Apartments 4950505051525257585859606060Example 4.5 Present Worth of a Sugar Mill Example 4.6 Invest in Gold or Stock Market Example 4.7 Electric/Gas Hybrid Vehicle Example 4.8 Effect of Inflation on PW Example 4.9 Life-Cycle Cost Analysis of HVAC Systems Example 4.10 Municipal Garbage Collection Truck Example 4.11 Hexane Extraction of Rice-Bran Oil 4.4 Annual Worth Analysis, AW Example 4.12 Annual Worth, AW of a Bio-Diesel Plant in Taiwan Example 4.13 Debt Consolidation Example 4.14 Solar Panel 4.5 IRR, Internal Rate of Return Example 4.15 Profitability of Liquefaction Plants Example 4.16 Ethanol Production by Fermentation 4.6 ERR, External Rate of Return 4.7 Payback Period Example 4.17 Copper-Chlorine Thermochemical Cycles for Hydrogen Production 4.6 Summary 4.7 References 4.8 Exercises CHAPTER 5.0 Comparison of Alternates and Decision Analysis5.1 Overview Example 5.1 Best Process to Manufacture CNTs, Carbon Nanotubes Example 5.2 Cost Savings by using Microfiltration Pre-Treatment during SWRO, Sea Water Reverse OsmosisExample 5.3 Bioethanol from Sugarcane Bagasse Example 5.4 Sequestration by Dimethyl Carbonate Formation 5.2 Study Period – Don’t Compare an Apple and an Orange Example 5.5 Life Cycle Cost of Photocopier Example 5.6 LED Lighting 5.3 Equivalent Worth Method Example 5.7 Anti-Allergic Cream 5.4 Optimization Example 5.8 Optimal Number of Effects in Multiple Effect Evaporator 5.5 Houshold Finances Example 5.8 Refinancing of Steve Gandhi Example 5.9 Toyota National Clearance 5.6 Summary 5.7 References 5.8 Exercises 989999101102103104106107106109112113114

CHAPTER 6.0 Depreciation and Replacement Analysis6.1 Overview 6.2 MACRS, Modified Accelerated Cost Recovery System Example 6.1 Depreciation Charge of Off shore drilling Asset 6.3 Methods of Depreciation 6.3.1 Method of Straight Line Example 6.2 Method of Straight Line for Depreciation of HRA, Helical Ribbon Agitator 6.3.2 Method of Declining Balance Example 6.3 Method of Declining Balance Line for Depreciation of HRA, Helical Ribbon Agitator6.3.2 Method of Units of Production Example 6.4 Hexane Extraction of Rice-Bran Oil (Kindly see Example 4.11) 6.4 Replacement Analysis Example 6.5 Photocopier Before-Tax Example 6.6 Best Year for Abandonment 6.5 Summary 6.6 References 6.7 Exercises 6CHAPTER 7.0 153Taxes, Tariffs and Duties7.1 Overview 1537.2 Tax Reform 1547.3 Types of Taxes 1557.4 Tax Consequences of Evaluation of a Single Project 155Example 7.1 Present Worth of a Sugar Mill after Tax Consequences 157Example 7.2 PW of ABS Plant Taking into Account Inflation and Tax Consequences 158Example 7.3 Profitability of Liquefaction Plants 1617.5 Summary 1627.6 References 1637.7 Exercises 163CHAPTER 8.0 Public Sector Initiatives and Benefit-to-Cost Ratio8.1 Introduction 8.1.1 Marshall Plan 8.1.2 Taj Mahal 8.1.3 Great Wall of China 8.1.4 Pyramid of Giza 8.1.5 Eiffel Tower 8.1.6 Suez Canal 8.1.7 Hoover Dam 1671671681681681681681681688.1.8 Apollo Program 8.1.9 NASA Mars Science Laboratory Mission 8.1.10 Interstate Highways 8.2 B-C-D Method Example 8.1 Firefighting in Yellowstone National Park in 1988 Example 8.2 Replacement for WTC, World Trade Center 8.3 Summary 8.4 References 8.5 Exercises CHAPTER 9.0 Break-Even Analysis and Spider Plots9.1 Overview Example 9.1 Break-Even Analysis for PEV, Chevy Volt Example 9.2 Spider Plot for Life-Cycle Cost of Chevy Volt 9.2 Exercises APPENDICESA. Discrete Compounding – Interest and Annuity Tables, Table A-1 to Table A-23 B. Continuous Compounding – Interest and Annuity Tables Table B-1 to B-25 169169169170172172173173173179179180180182191215

CHAPTER 6.0 Depreciation and Replacement Analysis6.1 Overview 6.2 MACRS, Modified Accelerated Cost Recovery System Example 6.1 Depreciation Charge of Off shore drilling Asset 6.3 Methods of Depreciation 6.3.1 Method of Straight Line Example 6.2 Method of Straight Line for Depreciation of HRA, Helical Ribbon Agitator 6.3.2 Method of Declining Balance Example 6.3 Method of Declining Balance Line for Depreciation of HRA, Helical Ribbon Agitator6.3.2 Method of Units of Production Example 6.4 Hexane Extraction of Rice-Bran Oil (Kindly see Example 4.11) 6.4 Replacement Analysis Example 6.5 Photocopier Before-Tax Example 6.6 Best Year for Abandonment 6.5 Summary 6.6 References 6.7 Exercises 6CHAPTER 7.0 153Taxes, Tariffs and Duties7.1 Overview 1537.2 Tax Reform 1547.3 Types of Taxes 1557.4 Tax Consequences of Evaluation of a Single Project 155Example 7.1 Present Worth of a Sugar Mill after Tax Consequences 157Example 7.2 PW of ABS Plant Taking into Account Inflation and Tax Consequences 158Example 7.3 Profitability of Liquefaction Plants 1617.5 Summary 1627.6 References 1637.7 Exercises 163CHAPTER 8.0 Public Sector Initiatives and Benefit-to-Cost Ratio8.1 Introduction 8.1.1 Marshall Plan 8.1.2 Taj Mahal 8.1.3 Great Wall of China 8.1.4 Pyramid of Giza 8.1.5 Eiffel Tower 8.1.6 Suez Canal 8.1.7 Hoover Dam 1671671681681681681681681688.1.8 Apollo Program 8.1.9 NASA Mars Science Laboratory Mission 8.1.10 Interstate Highways 8.2 B-C-D Method Example 8.1 Firefighting in Yellowstone National Park in 1988 Example 8.2 Replacement for WTC, World Trade Center 8.3 Summary 8.4 References 8.5 Exercises CHAPTER 9.0 Break-Even Analysis and Spider Plots9.1 Overview Example 9.1 Break-Even Analysis for PEV, Chevy Volt Example 9.2 Spider Plot for Life-Cycle Cost of Chevy Volt 9.2 Exercises APPENDICESA. Discrete Compounding – Interest and Annuity Tables, Table A-1 to Table A-23 B. Continuous

Overview of Engineering Economy 1.1 What is Engineering, What is Economy and 1 What is Engineering Economy ? Example 1.0 Start of Technocrats of Texas 4 1.2 Seven Principles of Engineering Economy 4 1.3 Summary 5 1.4 References 6 1.5 Exercises 6 CHAPTER 2.0 9 Fixed and Variable Costs 2.1 One Time and Recurring Costs 9