Compound Interest Equations (inside front cover)
Economic Criteria (inside back cover)
Preface
1. MAKING ECONOMIC DECISIONS
A Sea of Problems
Simple Problems, Intermediate Problems, Complex Problems
The Role of Engineering Economic Analysis
Examples of Engineering Economic Analysis
The Decision Making Process
Rational Decision Making: Recognize the Problem, Define the Goals, Assemble Relevant Data, Identify Feasible Alternatives, Select the Criterion, Construct a Model, Predict the Outcomes, Choose the Best Alternative, Audit the Results
Engineering Decision Making
2. ENGINEERING COSTS AND COST ESTIMATING
Engineering Costs
Fixed, Variable, Marginal, and Average Costs, Sunk Costs, Opportunity Costs, Recurring and Non-recurring Costs, Incremental Costs, Cash Costs versus Book Costs, Life-cycle Costs
Cost Estimating
Types of Estimates, Difficulties in Estimation, One-of-a-Kind Estimates, Time and Effort Available, Estimator Expertise
Estimating Models
Per Unit Model, Segmenting Model, Cost Indexes, Power Sizing Model, Triangulation, Improvement and the Learning Curve
Estimating Benefits
Cash Flow Diagrams
Categories of Cash Flows, Drawing a Cash Flow Diagram, Drawing a Cash Flow Diagram with a Spreadsheet
3. INTEREST AND EQUIVALENCE
Computing Cash Flows
Time Value of Money
Simple Interest
Repaying a Debt
Equivalence
Difference in Repayment Plans, Equivalence is Dependent on Interest Rate, Application of Equivalence Calculations
Single Payment Compound Interest Formulas
4. MORE INTEREST FORMULAS
Uniform Series Compound Interest Formulas
Relationships Between Compound Interest Factors
Single Payment, Uniform Series
Arithmetic Gradient
Derivation of Arithmetic Gradient Factors
Geometric Gradient
Nominal and Effective Interest
Continuous Compounding
Single Payment Interest Factors, Uniform Payment Series, Continuous, Uniform Cash Flow
Spreadsheets for Economic Analysis
Spreadsheet Annuity Functions, Spreadsheet Block Functions, Basic Graphing Using Spreadsheets
5. PRESENT WORTH ANALYSIS
Economic Criteria
Applying Present Worth Techniques
Useful Lives Equal the Analysis Period, Net Present Worth, Useful Lives Different from the Analysis Period, Infinite Analysis Period-Capitalized Cost, Multiple Alternatives
Assumptions in Solving Economic Analysis Problems
End-of-Year Convention, Viewpoint of Economic Analysis Studies, Sunk Costs, Borrowed Money Viewpoint, Effect of Inflation and Deflation, Income Taxes, Spreadsheets and Present Worth
6. ANNUAL CASH FLOW ANALYSIS
Annual Cash Flow Calculations
Resolving a Present Cost to an Annual Cost, Treatment of Salvage Value
Annual Cash Flow Analysis
Analysis Period
Analysis Period Equal to Alternative Lives, Analysis Period a Common Multiple of Alternative Lives, Analysis Period for a Continuing Requirement, Infinite Analysis Period, Some Other Analysis Period
Using Spreadsheets to Analyze Loans
Building an Amortization Schedule, How Much to Interest? How Much to Principal?, Finding the Balance Due on a Loan, Payoff Debt Sooner by Increasing Payments
7. RATE OF RETURN ANALYSIS
Internal Rate of Return
Calculating Rate of Return
Plot of NPW vs. Interest Rate i
Rate of Return Analysis
Analysis Period, Spreadsheets and Rate of Return Analysis
7A. DIFFICULTIES SOLVING FOR AN INTEREST RATE
Converting a Cash Flow to a Mathematical Equation
Cash Flow Rule of Signs
Zero Sign Changes, One Sign Change, Two or More Sign Changes, What the Difficulties Mean
External Interest Rate
Resolving Multiple Rate of Return Problems, A Further Look at the Computation of Rate of Return
8. INCREMENTAL ANALYSIS
Graphical Solutions
Incremental Rate of Return Analysis
Incremental Analysis Where There Are Unlimited Alternatives
Present Worth Analysis with Benefit-Cost Graphs
Choosing an Analysis Method
Spreadsheets and Incremental Analysis
9. OTHER ANALYSIS TECHNIQUES
Future Worth Analysis
Benefit-Cost Ratio Analysis
Continuous Alternatives
Payback Period
Sensitivity and Breakeven Analysis
Graphing with Spreadsheets for Sensitivity and Breakeven Analysis
10. DEPRECIATION
Basic Aspects of Depreciation
Deterioration and Obsolescence, Depreciation and Expenses, Types of Property, Depreciation Calculation Fundamentals
Historical Depreciation Methods
Straight Line Depreciation, Sum-of-Years Digits Depreciation, Declining Balance Depreciation
Modified Accelerated Cost Recovery System
Cost Basis and Placed in Service Date, Property Class and Recovery Period, Percentage Tables, Where MACRS Percentage Rates Come From, MACRS Method Examples, Comparing MACRS and Historical Methods
Depletion and Asset Disposal
Unit of Production Depreciation
Depletion
Cost Depletion, Percentage Depletion
Spreadsheets and Depreciation
11. INCOME TAXES
A Partner in the Business
Calculation of Taxable Income
Taxable Income of Individuals, Classification of Business Expenditures, Taxable Income of Business Firms
Income Tax Rates
Individual Tax Rates, Corporate Tax Rates, Combined Federal and State Income Taxes, Selecting an Income Tax Rate for Economic Studies
Economic Analysis Taking Income Taxes into Account
Capital Gains and Losses for Non-depreciable Assets
Investment Tax Credit
Estimating the After-Tax Rate of Return
After-Tax Cash Flows and Spreadsheets
12. REPLACEMENT ANALYSIS
The Replacement Problem
Replacement Analysis Decision Map
What Is the Basic Comparison?
Minimum Cost Life of the Challenger, Use of Marginal Cost Data, Replacement Analysis Technique #1, Minimum Cost Life of the Defender, Replacement Analysis Technique #2, No Defender Marginal Cost Data Available, Replacement Analysis Technique #3, Repeatability Assumptions Not Acceptable, A Closer Look at Future Challengers
After-Tax Replacement Analysis
Marginal Costs on an After-Tax Basis, After-Tax Cash Flows for the Challenger, After-Tax Cash Flows for the Defender, Minimum Cost Life Problems
Spreadsheets and After-Tax Replacement Analysis
Appendix
References
Index
Compound Interest Tables
Values of Interest Factors When N Equals Infinity
(Each chapter ends with a summary and problems.)