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AE mc 2This eBook is downloaded fromwww.PlentyofeBooks.net 1PlentyofeBooks.net is a blog with an aimof helping people, especially students,who cannot afford to buy some costlybooks from the market.For more Free eBooks and educationalmaterial visitwww.PlentyofeBooks.netUploaded By am exy98theBooks

Se v e nthn th Ed itionENGINEERINGECONOMY

Se v e n th Ed itionENGINEERINGECONOMYLeland Blank, P. E.Texas A & M UniversityAmerican University of Sharjah, United Arab EmiratesAnthony Tarquin, P. E.University of Texas at El PasoTM

TMENGINEERING ECONOMY: SEVENTH EDITIONPublished by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, NewYork, NY 10020. Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Previous editions 2005, 2002, and 1998. No part of this publication may be reproduced or distributed in any form or by any means, orstored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc.,including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distancelearning.Some ancillaries, including electronic and print components, may not be available to customers outside the UnitedStates.This book is printed on recycled, acid-free paper containing 10% postconsumer waste.1 2 3 4 5 6 7 8 9 0 QDB/QDB 1 0 9 8 7 6 5 4 3 2 1ISBN 978-0-07-337630-1MHID 0-07-337630-2Vice President & Editor-in-Chief: Marty LangeVice President EDP/Central Publishing Services: Kimberly Meriwether DavidGlobal Publisher: Raghothaman SrinivasanSponsoring Editor: Peter E. MassarSenior Marketing Manager: Curt ReynoldsDevelopment Editor: Lorraine K. BuczekSenior Project Manager: Jane MohrDesign Coordinator: Brenda A. RolwesCover Designer: Studio Montage, St. Louis, MissouriCover Image: Brand X Pictures/PunchStock RFBuyer: Kara KudronowiczMedia Project Manager: Balaji SundararamanCompositor: MPS Limited, a Macmillan CompanyTypeface: 10/12 TimesPrinter: Quad/Graphics-DubuqueAll credits appearing on page or at the end of the book are considered to be an extension of the copyright page.Library of Congress Cataloging-in-Publication DataBlank, Leland T.Engineering economy / Leland Blank, Anthony Tarquin. — 7th ed.p. cm.Includes bibliographical references and index.ISBN-13: 978-0-07-337630-1 (alk. paper)ISBN-10: 0-07-337630-21. Engineering economy. I. Tarquin, Anthony J. II. Title.TA177.4.B58 2012658.15—dc222010052297www.mhhe.com

This book is dedicated to Dr. Frank W. Sheppard, Jr. His lifelongcommitment to education, fair financial practices, internationaloutreach, and family values has been an inspiration to many—oneperson at a time.

M C GRAW-HILL DIGITAL OFFERINGSMcGraw-Hill Create Craft your teaching resources to match the way you teach! With McGraw-Hill Create , www.mcgrawhillcreate.com, you can easily rearrange chapters, combine material from other contentsources, and quickly upload content you have written like your course syllabus or teaching notes.Find the content you need in Create by searching through thousands of leading McGraw-Hilltextbooks. Arrange your book to fit your teaching style. Create even allows you to personalizeyour book’s appearance by selecting the cover and adding your name, school, and course information. Order a Create book and you’ll receive a complimentary print review copy in 3–5 business days or a complimentary electronic review copy (eComp) via email in minutes. Go to www.mcgrawhillcreate.com today and register to experience how McGraw-Hill Create empowersyou to teach your students your way.McGraw-Hill Higher Education and Blackboard HaveTeamed UpBlackboard, the Web-based course-management system, has partnered with McGraw-Hill to better allow students and faculty to use online materials and activities to complement face-to-faceteaching. Blackboard features exciting social learning and teaching tools that foster more logical,visually impactful and active learning opportunities for students. You’ll transform your closeddoor classrooms into communities where students remain connected to their educational experience 24 hours a day.This partnership allows you and your students access to McGraw-Hill’s Create right fromwithin your Blackboard course – all with one single sign-on. McGraw-Hill and Blackboard cannow offer you easy access to industry leading technology and content, whether your campushosts it, or we do. Be sure to ask your local McGraw-Hill representative for details.Electronic Textbook OptionsThis text is offered through CourseSmart for both instructors and students. CourseSmart is anonline resource where students can purchase the complete text online at almost half the cost of atraditional text. Purchasing the eTextbook allows students to take advantage of CourseSmart’sweb tools for learning, which include full text search, notes and highlighting, and email tools forsharing notes between classmates. To learn more about CourseSmart options, contact your salesrepresentative or visit www.CourseSmart.com.

CONTENTSPreface to Seventh EditionLEARNINGSTAGE 1Chapter 1xiiiTHE FUNDAMENTALSFoundations of Engineering Economy1.11.21.31.41.51.61.71.81.91.10Chapter 2Factors: How Time and Interest Affect MoneyPE2.12.22.32.42.52.62.7Chapter 3Progressive Example—The Cement Factory CaseSingle-Amount Factors (F P and P F )Uniform Series Present Worth Factor and Capital Recovery Factor (P A and A P)Sinking Fund Factor and Uniform Series Compound Amount Factor (A F and F A)Factor Values for Untabulated i or n ValuesArithmetic Gradient Factors (P G and A G)Geometric Gradient Series FactorsDetermining i or n for Known Cash Flow ValuesChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—Time Marches On; So Does the Interest RateCombining Factors and Spreadsheet Functions3.13.23.3Chapter 4Engineering Economics: Description andRole in Decision MakingPerforming an Engineering Economy StudyProfessional Ethics and Economic DecisionsInterest Rate and Rate of ReturnTerminology and SymbolsCash Flows: Estimation and DiagrammingEconomic EquivalenceSimple and Compound InterestMinimum Attractive Rate of ReturnIntroduction to Spreadsheet UseChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—Renewable Energy Sources for Electricity GenerationCase Study—Refrigerator ShellsCalculations for Uniform Series That Are ShiftedCalculations Involving Uniform Series and Randomly Placed Single AmountsCalculations for Shifted GradientsChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—Preserving Land for Public UseNominal and Effective Interest RatesPE4.14.24.34.44.5Progressive Example—The Credit Card Offer CaseNominal and Effective Interest Rate StatementsEffective Annual Interest RatesEffective Interest Rates for Any Time PeriodEquivalence Relations: Payment Period and Compounding PeriodEquivalence Relations: Single Amounts with PP 646970727376808686929394959699105106107

viiiContents4.64.74.84.9LEARNINGSTAGE 2Chapter 5Present Worth Analysis5.15.25.35.45.5Advantages and Uses of Annual Worth AnalysisCalculation of Capital Recovery and AW ValuesEvaluating Alternatives by Annual Worth AnalysisAW of a Permanent InvestmentLife-Cycle Cost AnalysisChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—The Changing Scene of an Annual Worth AnalysisRate of Return Analysis: One Project7.17.27.37.47.57.6Chapter 8Progressive Example—Water for Semiconductor Manufacturing CaseFormulating AlternativesPresent Worth Analysis of Equal-Life AlternativesPresent Worth Analysis of Different-Life AlternativesFuture Worth AnalysisCapitalized Cost AnalysisChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—Comparing Social Security BenefitsAnnual Worth Analysis6.16.26.36.46.5Chapter 7109112114116117118122124BASIC ANALYSIS TOOLSPEChapter 6Equivalence Relations: Series with PP CPEquivalence Relations: Single Amounts and Series with PP CPEffective Interest Rate for Continuous CompoundingInterest Rates That Vary over TimeChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—Is Owning a Home a Net Gain or Net Loss over 157160164164169171172Interpretation of a Rate of Return ValueRate of Return Calculation Using a PW or AW RelationSpecial Considerations When Using the ROR MethodMultiple Rate of Return ValuesTechniques to Remove Multiple Rates of ReturnRate of Return of a Bond InvestmentChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—Developing and Selling an Innovative Idea173175179180184190193193198200Rate of Return Analysis: Multiple Alternatives2028.18.28.38.48.58.6Why Incremental Analysis Is NecessaryCalculation of Incremental Cash Flows for ROR AnalysisInterpretation of Rate of Return on the Extra InvestmentRate of Return Evaluation Using PW: Incremental and BreakevenRate of Return Evaluation Using AWIncremental ROR Analysis of Multiple Alternatives203203206207213214

Contents8.7Chapter 9All-in-One Spreadsheet Analysis (Optional)Chapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—ROR Analysis with Estimated Lives That VaryCase Study—How a New Engineering Graduate Can Help His FatherBenefit/Cost Analysis and Public Sector EconomicsPE9.19.29.39.49.59.6Progressive Example—Water Treatment Facility #3 CasePublic Sector ProjectsBenefit/Cost Analysis of a Single ProjectAlternative Selection Using Incremental B/C AnalysisIncremental B/C Analysis of Multiple, Mutually Exclusive AlternativesService Sector Projects and Cost-Effectiveness AnalysisEthical Considerations in the Public SectorChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—Comparing B/C Analysis and CEA of Traffic Accident ReductionLEARNINGSTAGE 2EPILOGUE: SELECTING THE BASIC ANALYSIS TOOLLEARNINGSTAGE 3MAKING BETTER DECISIONSChapter 10Project Financing and Noneconomic Attributes10.110.210.310.410.510.610.7Chapter 11MARR Relative to the Cost of CapitalDebt-Equity Mix and Weighted Average Cost of CapitalDetermination of the Cost of Debt CapitalDetermination of the Cost of Equity Capital and the MARREffect of Debt-Equity Mix on Investment RiskMultiple Attribute Analysis: Identification and Importance of Each AttributeEvaluation Measure for Multiple AttributesChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—Which Is Better—Debt or Equity Financing?Replacement and Retention DecisionsPE11.111.211.311.411.511.6Progressive Example—Keep or Replace the Kiln CaseBasics of a Replacement StudyEconomic Service LifePerforming a Replacement StudyAdditional Considerations in a Replacement StudyReplacement Study over a Specified Study PeriodReplacement ValueChapter SummaryProblemsAdditional Problems and FE Exam Review QuestionsCase Study—Will the Correct ESL Please 2293294296302306307312312313319321