seriestatanano

FundamentalsofEngineeringEconomicsEditedbyKalRenganathanSharmaIncludedinthispreview:CopyrightPageTableofContentsExcerptofChapter1Foradditionalinformationonadoptingthisbookforyourclass,pleasecontactusat800.
200.
3908x501orviae-mailatinfo@cognella.
comFundamentalsofEngineeringEconomicsByKalRenganathanSharmaPrairieViewA&MUniversityCopyright2011UniversityReadersInc.
Allrightsreserved.
Nopartofthispublicationmaybereprinted,reproduced,transmitted,orutilizedinanyformorbyanyelectronic,mechanical,orothermeans,nowknownorhereafterinvented,includingphotocopying,microfilming,andrecording,orinanyinformationretrievalsystemwithoutthewrittenpermissionofUniversityReaders,Inc.
FirstpublishedintheUnitedStatesofAmericain2011byCognella,adivisionofUniversityReaders,Inc.
TrademarkNotice:Productorcorporatenamesmaybetrademarksorregisteredtrademarks,andareusedonlyforidentificationandexplanationwithoutintenttoinfringe.
151413121112345PrintedintheUnitedStatesofAmericaISBN:978-1-60927-826-7ContentsDedicationixAbouttheAuthorxiPrefacexiiiCHAPTER1.
01OverviewofEngineeringEconomy1.
1WhatisEngineering,WhatisEconomyand1WhatisEngineeringEconomyExample1.
0StartofTechnocratsofTexas41.
2SevenPrinciplesofEngineeringEconomy41.
3Summary51.
4References61.
5Exercises6CHAPTER2.
09FixedandVariableCosts2.
1OneTimeandRecurringCosts92.
2LifeCycleofanEnterprise102.
3TotalRevenue,TotalCostandProfitableRegion11Example2.
1GarlicNibblerSnackFactory122.
4GiffenandVeblenGoods15Example2.
2JapaneseRobots15Example2.
3LawnmoversfromChina172.
5DualisticRelations192.
6Summary232.
7References242.
8Exercises28Copyright2011UniversityReadersInc.
Allrightsreserved.
Nopartofthispublicationmaybereprinted,reproduced,transmitted,orutilizedinanyformorbyanyelectronic,mechanical,orothermeans,nowknownorhereafterinvented,includingphotocopying,microfilming,andrecording,orinanyinformationretrievalsystemwithoutthewrittenpermissionofUniversityReaders,Inc.
FirstpublishedintheUnitedStatesofAmericain2011byCognella,adivisionofUniversityReaders,Inc.
TrademarkNotice:Productorcorporatenamesmaybetrademarksorregisteredtrademarks,andareusedonlyforidentificationandexplanationwithoutintenttoinfringe.
151413121112345PrintedintheUnitedStatesofAmericaISBN:978-1-60927-826-7ContentsDedicationixAbouttheAuthorxiPrefacexiiiCHAPTER1.
01OverviewofEngineeringEconomy1.
1WhatisEngineering,WhatisEconomyand1WhatisEngineeringEconomyExample1.
0StartofTechnocratsofTexas41.
2SevenPrinciplesofEngineeringEconomy41.
3Summary51.
4References61.
5Exercises6CHAPTER2.
09FixedandVariableCosts2.
1OneTimeandRecurringCosts92.
2LifeCycleofanEnterprise102.
3TotalRevenue,TotalCostandProfitableRegion11Example2.
1GarlicNibblerSnackFactory122.
4GiffenandVeblenGoods15Example2.
2JapaneseRobots15Example2.
3LawnmoversfromChina172.
5DualisticRelations192.
6Summary232.
7References242.
8Exercises28Example4.
5PresentWorthofaSugarMill61Example4.
6InvestinGoldorStockMarket62Example4.
7Electric/GasHybridVehicle63Example4.
8EffectofInflationonPW64Example4.
9Life-CycleCostAnalysisofHVACSystems65Example4.
10MunicipalGarbageCollectionTruck66Example4.
11HexaneExtractionofRice-BranOil664.
4AnnualWorthAnalysis,AW67Example4.
12AnnualWorth,AWofaBio-DieselPlantinTaiwan68Example4.
13DebtConsolidation68Example4.
14SolarPanel704.
5IRR,InternalRateofReturn70Example4.
15ProfitabilityofLiquefactionPlants71Example4.
16EthanolProductionbyFermentation734.
6ERR,ExternalRateofReturn734.
7PaybackPeriod74Example4.
17Copper-ChlorineThermochemicalCyclesforHydrogenProduction754.
6Summary754.
7References764.
8Exercises77CHAPTER5.
091ComparisonofAlternatesandDecisionAnalysis5.
1OverviewExample915.
1BestProcesstoManufactureCNTs,CarbonNanotubesExample935.
2CostSavingsbyusingMicrofiltrationPre-TreatmentduringSWRO,SeaWater95ReverseOsmosisExample5.
3BioethanolfromSugarcaneBagasse96Example5.
4SequestrationbyDimethylCarbonateFormation985.
2StudyPeriod–Don'tCompareanAppleandanOrange99Example5.
5LifeCycleCostofPhotocopier99Example5.
6LEDLighting1015.
3EquivalentWorthMethod102Example5.
7Anti-AllergicCream1035.
4Optimization104Example5.
8OptimalNumberofEffectsinMultipleEffectEvaporator1065.
5HousholdFinances107Example5.
8RefinancingofSteveGandhi106Example5.
9ToyotaNationalClearance1095.
6Summary1125.
7References1135.
8Exercises114CHAPTER3.
029TimeWorthofMoney3.
1SimpleandCompoundInterest29Example3.
1CompoundInterestCalculatedonanEveryDayBasis313.
1.
2EffectiveInterestRate323.
2UniformSeriesofPayments333.
2.
1GivenA,iandNFindF34Example3.
2DoublingTimeofInvestment353.
2.
2GivenA,iandN,FindP36Example3.
3PerpetualPaymentandFathers'DayPrize37Example3.
40%InterestRate38Example3.
5NestEggofAliceSmith38Example3.
6DiversifiedPortfolio38Example3.
7GeorgeTataseo'sRoyaltyPaymentsandInvestment393.
2.
3GivenF,iandA,FindN393.
2.
4GivenP,iandA,FindN403.
2.
5GivenF,AandN,Findi413.
2.
6GivenP,AandN,Findi42Example3.
8U-Paynow&I-PayLater42Example3.
9WhendoesaMicro-Powerplantbecomeamoreattractiveinvestment433.
3UniformGradientSeriesofPayments443.
4ContinuousCompounding453.
4.
1F/P,F/A,P/A,A/F,A/PforContinuousCompounding46Example3.
10ContinuousCompounding473.
4.
2GivenF,A,i'FindNDuringContinuousCompounding47Example3.
11TimeTakentoAchieveInvestmentGoal48Example3.
12BiodieselProductionfromWasteCookingOil49Example3.
13CreditCardDebtofallUSHouseholds50Example3.
14TimeTakentoPayoffCreditCardDebt50Example3.
15DeferredAnnuity503.
5Summary513.
6References523.
7Exercises52CHAPTER4.
057FiveMethodsforEvaluationofCapitalProject4.
1Overview574.
2PresentWorthAnalysis,PW58Example4.
1HydrogenfromFastPyrolysisandSteamReforming58Example4.
2ReplacementforWTC,WorldTradeCenter59Example4.
3CapitalizedWorthofStone'sReplacementforWTC604.
3FutureWorthAnalysis,FW60Example4.
4UniversityApartments60Example4.
5PresentWorthofaSugarMill61Example4.
6InvestinGoldorStockMarket62Example4.
7Electric/GasHybridVehicle63Example4.
8EffectofInflationonPW64Example4.
9Life-CycleCostAnalysisofHVACSystems65Example4.
10MunicipalGarbageCollectionTruck66Example4.
11HexaneExtractionofRice-BranOil664.
4AnnualWorthAnalysis,AW67Example4.
12AnnualWorth,AWofaBio-DieselPlantinTaiwan68Example4.
13DebtConsolidation68Example4.
14SolarPanel704.
5IRR,InternalRateofReturn70Example4.
15ProfitabilityofLiquefactionPlants71Example4.
16EthanolProductionbyFermentation734.
6ERR,ExternalRateofReturn734.
7PaybackPeriod74Example4.
17Copper-ChlorineThermochemicalCyclesforHydrogenProduction754.
6Summary754.
7References764.
8Exercises77CHAPTER5.
091ComparisonofAlternatesandDecisionAnalysis5.
1OverviewExample915.
1BestProcesstoManufactureCNTs,CarbonNanotubesExample935.
2CostSavingsbyusingMicrofiltrationPre-TreatmentduringSWRO,SeaWater95ReverseOsmosisExample5.
3BioethanolfromSugarcaneBagasse96Example5.
4SequestrationbyDimethylCarbonateFormation985.
2StudyPeriod–Don'tCompareanAppleandanOrange99Example5.
5LifeCycleCostofPhotocopier99Example5.
6LEDLighting1015.
3EquivalentWorthMethod102Example5.
7Anti-AllergicCream1035.
4Optimization104Example5.
8OptimalNumberofEffectsinMultipleEffectEvaporator1065.
5HousholdFinances107Example5.
8RefinancingofSteveGandhi106Example5.
9ToyotaNationalClearance1095.
6Summary1125.
7References1135.
8Exercises114CHAPTER3.
029TimeWorthofMoney3.
1SimpleandCompoundInterest29Example3.
1CompoundInterestCalculatedonanEveryDayBasis313.
1.
2EffectiveInterestRate323.
2UniformSeriesofPayments333.
2.
1GivenA,iandNFindF34Example3.
2DoublingTimeofInvestment353.
2.
2GivenA,iandN,FindP36Example3.
3PerpetualPaymentandFathers'DayPrize37Example3.
40%InterestRate38Example3.
5NestEggofAliceSmith38Example3.
6DiversifiedPortfolio38Example3.
7GeorgeTataseo'sRoyaltyPaymentsandInvestment393.
2.
3GivenF,iandA,FindN393.
2.
4GivenP,iandA,FindN403.
2.
5GivenF,AandN,Findi413.
2.
6GivenP,AandN,Findi42Example3.
8U-Paynow&I-PayLater42Example3.
9WhendoesaMicro-Powerplantbecomeamoreattractiveinvestment433.
3UniformGradientSeriesofPayments443.
4ContinuousCompounding453.
4.
1F/P,F/A,P/A,A/F,A/PforContinuousCompounding46Example3.
10ContinuousCompounding473.
4.
2GivenF,A,i'FindNDuringContinuousCompounding47Example3.
11TimeTakentoAchieveInvestmentGoal48Example3.
12BiodieselProductionfromWasteCookingOil49Example3.
13CreditCardDebtofallUSHouseholds50Example3.
14TimeTakentoPayoffCreditCardDebt50Example3.
15DeferredAnnuity503.
5Summary513.
6References523.
7Exercises52CHAPTER4.
057FiveMethodsforEvaluationofCapitalProject4.
1Overview574.
2PresentWorthAnalysis,PW58Example4.
1HydrogenfromFastPyrolysisandSteamReforming58Example4.
2ReplacementforWTC,WorldTradeCenter59Example4.
3CapitalizedWorthofStone'sReplacementforWTC604.
3FutureWorthAnalysis,FW60Example4.
4UniversityApartments608.
1.
8ApolloProgram1698.
1.
9NASAMarsScienceLaboratoryMission1698.
1.
10InterstateHighways1698.
2B-C-DMethod170Example8.
1FirefightinginYellowstoneNationalParkin1988172Example8.
2ReplacementforWTC,WorldTradeCenter1728.
3Summary1738.
4References1738.
5Exercises173CHAPTER9.
0179Break-EvenAnalysisandSpiderPlots9.
1Overview179Example9.
1Break-EvenAnalysisforPEV,ChevyVolt180Example9.
2SpiderPlotforLife-CycleCostofChevyVolt1809.
2Exercises182APPENDICESA.
DiscreteCompounding–InterestandAnnuityTables,TableA-1toTableA-23191B.
ContinuousCompounding–InterestandAnnuityTablesTableB-1toB-25215CHAPTER6.
0131DepreciationandReplacementAnalysis6.
1Overview1316.
2MACRS,ModifiedAcceleratedCostRecoverySystem132Example6.
1DepreciationChargeofOffshoredrillingAsset1346.
3MethodsofDepreciation1346.
3.
1MethodofStraightLine134Example6.
2MethodofStraightLineforDepreciationofHRA,HelicalRibbonAgitator1366.
3.
2MethodofDecliningBalance136Example6.
3MethodofDecliningBalanceLineforDepreciationofHRA,HelicalRibbon138Agitator6.
3.
2MethodofUnitsofProductionExample1396.
4HexaneExtractionofRice-BranOil(KindlyseeExample4.
11)1416.
4ReplacementAnalysis141Example6.
5PhotocopierBefore-Tax142Example6.
6BestYearforAbandonment1446.
5Summary1456.
6References1466.
7Exercises146CHAPTER7.
0153Taxes,TariffsandDuties7.
1Overview1537.
2TaxReform1547.
3TypesofTaxes1557.
4TaxConsequencesofEvaluationofaSingleProject155Example7.
1PresentWorthofaSugarMillafterTaxConsequences157Example7.
2PWofABSPlantTakingintoAccountInflationandTaxConsequences158Example7.
3ProfitabilityofLiquefactionPlants1617.
5Summary1627.
6References1637.
7Exercises163CHAPTER8.
0167PublicSectorInitiativesandBenefit-to-CostRatio8.
1Introduction1678.
1.
1MarshallPlan1688.
1.
2TajMahal1688.
1.
3GreatWallofChina1688.
1.
4PyramidofGiza1688.
1.
5EiffelTower1688.
1.
6SuezCanal1688.
1.
7HooverDam1688.
1.
8ApolloProgram1698.
1.
9NASAMarsScienceLaboratoryMission1698.
1.
10InterstateHighways1698.
2B-C-DMethod170Example8.
1FirefightinginYellowstoneNationalParkin1988172Example8.
2ReplacementforWTC,WorldTradeCenter1728.
3Summary1738.
4References1738.
5Exercises173CHAPTER9.
0179Break-EvenAnalysisandSpiderPlots9.
1Overview179Example9.
1Break-EvenAnalysisforPEV,ChevyVolt180Example9.
2SpiderPlotforLife-CycleCostofChevyVolt1809.
2Exercises182APPENDICESA.
DiscreteCompounding–InterestandAnnuityTables,TableA-1toTableA-23191B.
ContinuousCompounding–InterestandAnnuityTablesTableB-1toB-25215CHAPTER6.
0131DepreciationandReplacementAnalysis6.
1Overview1316.
2MACRS,ModifiedAcceleratedCostRecoverySystem132Example6.
1DepreciationChargeofOffshoredrillingAsset1346.
3MethodsofDepreciation1346.
3.
1MethodofStraightLine134Example6.
2MethodofStraightLineforDepreciationofHRA,HelicalRibbonAgitator1366.
3.
2MethodofDecliningBalance136Example6.
3MethodofDecliningBalanceLineforDepreciationofHRA,HelicalRibbon138Agitator6.
3.
2MethodofUnitsofProductionExample1396.
4HexaneExtractionofRice-BranOil(KindlyseeExample4.
11)1416.
4ReplacementAnalysis141Example6.
5PhotocopierBefore-Tax142Example6.
6BestYearforAbandonment1446.
5Summary1456.
6References1466.
7Exercises146CHAPTER7.
0153Taxes,TariffsandDuties7.
1Overview1537.
2TaxReform1547.
3TypesofTaxes1557.
4TaxConsequencesofEvaluationofaSingleProject155Example7.
1PresentWorthofaSugarMillafterTaxConsequences157Example7.
2PWofABSPlantTakingintoAccountInflationandTaxConsequences158Example7.
3ProfitabilityofLiquefactionPlants1617.
5Summary1627.
6References1637.
7Exercises163CHAPTER8.
0167PublicSectorInitiativesandBenefit-to-CostRatio8.
1Introduction1678.
1.
1MarshallPlan1688.
1.
2TajMahal1688.
1.
3GreatWallofChina1688.
1.
4PyramidofGiza1688.
1.
5EiffelTower1688.
1.
6SuezCanal1688.
1.
7HooverDam168Dedication|ixThisbookisdedicatedtomyeldestsonR.
HariSubrahmanyanSharma(aliasRamkishan)whoturnednineonAug-13-2010.
DedicationAbouttheAuthor|xiKalRenganathanSharmaservesasAdjunctProfessorofChemicalEngineeringattheRoyG.
PerryCollegeofEngineeringatPrairieViewA&MUniversity,PrairieView,TX.
HeinstructsCHEG2003EconomicAnalysisandTechnicalApplications.
HereceivedhisB.
Tech.
fromIndianInstituteofTechnology,Chennai,India,in1985,MSandPh.
Ddegreesin1987and1990fromWestVirginiaUniversity,Morgantown,WV,allthreedegreesinchemicalengineering.
HereceivedtheonceinaschooltimeprizefromnurserytohighersecondaryschoolfortheBestAllRoundStudentofthePenultimateyearfromtheRev.
BrothersofSt.
GabrielatRSKHigherSecondarySchool,Trichy,India.
HehasheldanumberofhighlevelacademicpositionsinIndiaandUSA.
Dr.
Sharma,KR,istheauthorof10books,4Book-Chapters,19journalarticles,503conferencepapersand108otherpresentations.
Hehasinstructedover2500studentsin83semesterwisecoursesinIndiaandUSAoverthepast15years.
HonorsreceivedincludeHonoraryFellowship,AustralianInstituteofHighEnergeticMaterials,Melbourne,Australia,2010,Fellow,IndianChemicalSociety,Kolkata,India,2007,Who'sWhoinAmerica,2009-2010,MarquisWho'sWho,UpperSaddleRiver,NJ,InternationalBiographicalCenter,Cambridge,UK,2007,mem-ber,NewYorkAcademyofSciences,NewYork,NY,1996,PhiKappaPhi,1990,SigmaXi,1995,cashaward,SASTRAUniversity,Thanjavur,India,2005,cashaward,Monsanto,IndianOrchad,MA,1990,Who'sWhoinPlasticsandPolymers,CRCPress,BacoRaton,FL,2000.
HeisanaturalizedcitizenofUSA.
AbouttheAuthorPreface|xiiiPrefaceTheeconomyhaschangedrapidly.
Boththenation'seconomyandtheworldeconomyhasundergonechangessincetheWordWarII.
Theendofcoldwarhasgivenimpetustoriseofglobalization.
ChinaandIndiaarenowinvitedtoattendG20meetings.
Engineeringeducationimpartsavarietyofskillstothestudent.
Skillsfromeconomicscanbesynergisticallyapplied.
Theengineeringeconomyisafieldofendeavorthatexplainsdifferentmethodstoevaluatealternatesavailabletothebusinessowner.
EngineeringEconomyisthestudyofthefeasibilityandevaluationofthecostofpossiblesolutionstoengineeringproblems.
Whenbenefitsoutweighcoststhealternatebecomesaacceptableone.
Thelowestcostamongalternatescanbeselectedbyusingdifferentmethodsdiscussedindetailinthetextbook.
Thisiscalculatedatacertaininterestrateoveracertainprescribedperiodoftime.
Theinverseproblemofdeterminingtheinterestrate,i,giventheF,AandNisexplainedindetailinthiswork.
Thebinomialseriesexpansionof(1+i)Nisusedtoobtainmathematicalexpressions.
Ncanbeestimatedgiventhefutureamount,F,uniformseriesofpayments,Aandinterestrateibyobtainingthelogarithmswherenecessary.
Thefundamentalprinciples,conceptsandmethodsofengineeringeconomyareprovided.
Currenttrendsandissuesarereflectedintheworkedexamplesandendofchapterexercises.
Alnernatesaredrawnfromcasestudies.
TheseincludetheKeystonepipelineproject,CWofWorldTradeCenter,sixdifferentmethodstopreparebioethanol,biodieselplantinTaiwan,micropowerplant,combinedcyclepowerplant,meglumineantimonoatedrugfromsupercriticalextraction,on-shoreoilwell,solarhats,stirlingdishsolarpowerplant,photovoltaicpanelsolarpowerplant,liquefactionplants,copperchlorinethermochemicalcycleforhydrogen,energyefficientwindows,contiuousmasspolymerizationprocesstomanufactureABS,renovationofMacy'sdepartmentstore,heapleachingandagitationleachingofgold,rechargeablebatteriesforelectriccar,PEVsandHEV,hybridelectricvehicles,fourdifferentcoolingtowerdesigns,oilrefinery,economicsoflifeinsurance,socialsecurity,printingpressvs.
e-book,anti-allergiccream,sequestrationbydimethylcarbonateformation,micro-filtration,SWRO,seawaterreverseosmosisplant,catalyticprocesstomanufactureCNTs,carbonnanotubes,hexaneextractionofricebranoil,municipalgarbagecollectiontruck,activatedcarbonfrombamboo,poly-propylenegasmanufacture,customfoamfabricator,carrental,coffeehouse,frozenyoghurtparlor,shortpathdistillation,oliveoilbusiness,bondsfromprivatesector,Chevyvolt,publicinternet,gassalesandconveniencestore,condominiumsatGalvestonbeach,outpatientdrugtreatmentcenter,overseastravelticket,snackfactory.
Break-evenpointsinflowershop,sodabeverage,cars,quandraticprice-demandrelationsfortomatoes,peaches,inelasticsupplyofcommonsalt,dualisticrelationsofpriceanddemand,Le-Chatellier-Samuelsonprinciplearediscussedindetail.
G20nationsandGDPestimatesbyPPP,purchasingpowerparityandthechangingworldChapter1.
0|1xiv|FundamentalsofEngineeringEconomicsMainTopicsDiscussedinthisChapterDefinitionsofEngineering,EconomyAlternatesandRulesofBrainstormingEconomicMeritsofAlternatesDeviationAnalysis,DecisionAnalysisActionPlanPrinciplesofEngineeringEconomyStepsofProblemSolving1.
1WhatIsEngineering,WhatIsEconomy,andWhatIsEngineeringEconomyTechnologicaladvancesinmachines,materials,computers,structures,andelectronicshavechangedthejobdescriptionoftheengineerrapidly.
Economicmeritsofthedifferentalternativesavailabletothesolutionofagivenproblemcanbeevaluatedinasystematicmanner.
Thedollars-and-centssideofdecisionmakingisdiscussedindetailinthisbook.
Accordingtoanestimatein2005,thereareabout240millionvehiclesontheroadintheUnitedStates.
Theeconomyfueledbytheautomotivesectorislarge.
EngineeringisdefinedbyABET(AccreditationforEngineeringandTechnology)astheprofessioninwhichtheknowledgegainedinphysics,chemistry,lifesciences,andmathematicsisappliedtomakeproductsinlargescalethatincreasetheprosperityofman.
Thismustbeachievedwithajudiciouschoiceofmaterials,atthelowestcostinamannerthatisbenigntotheenvironment,andthatkeepsallthestakeholderssafe.
Examplesofengineeringachievementscanbeseeninthetopengineeringinventionsofthe20thcentury.
AccordingtotheNationalAcademyofEngineering,thetop20engineeringachievementsofthe20thcenturyarelistedinTable1.
0(1).
Economyconsistsofthesumtotalofallincomefromgoodsproducedandservicesofferedinastateornation.
Itdealswiththeinteractionsbetweenpeopleandwealth.
ThesizeoftheUnitedStates'economycanbemeasuredusingparameterssuchasGDP(GrossDomesticProduct)GNP(GrossNationalProduct)isdifferentfromGDPwithrespecttoinclusionofincomeearnedabroad.
GDPstickstowithinthedomicileofthenation.
Thesizesoftheeconomiesof20nationsthatmeetregularlyasG20arelistedinTable2.
0.
The19nations,otherthantheEuropeanUnion,arelistedaccordingtothesizesoftheireconomies.
ThenumbersinTable2.
0weredevelopedbythepriceslaiddownbytheIMF,theInternationalMonetaryFund,fortheyear2008.
Chapter1.
0OverviewofEngineeringEconomyorderineconomiesistouchedupon.
Life-cyclecostsofaviationlighting,LED,photocopier,HVACsystemsarediscussed.
Depreciation,taxes,replacementanalysisarediscussed.
UniqueFeaturesOptimizationconceptsarediscussedindetail.
Brainstormingcanbeusedtodevelopalternatesforagivenproblem.
Thefivemethodsofanalysis,PW,FW,AW,IRRandERRcanbeusedtoevaluatethealternates.
Evalua-tionofalternatescanbeusedtoinvestinthemoreprofitableprocess,selectionofthelowercostalternate,quantitatethesavingsaccruedfromimplementationofaprocessimprovementandassessmentofenvi-ronmentalimpactofchemicalprocesses.
Alternatescanbemutuallyexclusive,independentprojectsandscreeningbyothercriteria.
WhenthePWsofbothalternatesarewithin20%ofeachothertheprojectscanbeadjudgedastooclosetocallwithinthesensitivityoftheestimatesofthecapitalandoperatingexpensesandexpectedrevenues.
Rudimentsofhouseholdfinancearediscussed.
Thecapitalizationworthfactorsandsinkingfundfactorsarecalculatedandpresentedasannuitytablesaswellasingraphicalform.
InadditiontoP/A,F/A,A/F,A/P,F/P,P/Fclosedformanalyticalexpressionstocalculatetheinterestrate,iandpayperiod,Nhasbeendeveloped.
Benefit/CostRatioofpublicsectorprojectsarediscussedChapter1.
0|1xiv|FundamentalsofEngineeringEconomicsMainTopicsDiscussedinthisChapterDefinitionsofEngineering,EconomyAlternatesandRulesofBrainstormingEconomicMeritsofAlternatesDeviationAnalysis,DecisionAnalysisActionPlanPrinciplesofEngineeringEconomyStepsofProblemSolving1.
1WhatIsEngineering,WhatIsEconomy,andWhatIsEngineeringEconomyTechnologicaladvancesinmachines,materials,computers,structures,andelectronicshavechangedthejobdescriptionoftheengineerrapidly.
Economicmeritsofthedifferentalternativesavailabletothesolutionofagivenproblemcanbeevaluatedinasystematicmanner.
Thedollars-and-centssideofdecisionmakingisdiscussedindetailinthisbook.
Accordingtoanestimatein2005,thereareabout240millionvehiclesontheroadintheUnitedStates.
Theeconomyfueledbytheautomotivesectorislarge.
EngineeringisdefinedbyABET(AccreditationforEngineeringandTechnology)astheprofessioninwhichtheknowledgegainedinphysics,chemistry,lifesciences,andmathematicsisappliedtomakeproductsinlargescalethatincreasetheprosperityofman.
Thismustbeachievedwithajudiciouschoiceofmaterials,atthelowestcostinamannerthatisbenigntotheenvironment,andthatkeepsallthestakeholderssafe.
Examplesofengineeringachievementscanbeseeninthetopengineeringinventionsofthe20thcentury.
AccordingtotheNationalAcademyofEngineering,thetop20engineeringachievementsofthe20thcenturyarelistedinTable1.
0(1).
Economyconsistsofthesumtotalofallincomefromgoodsproducedandservicesofferedinastateornation.
Itdealswiththeinteractionsbetweenpeopleandwealth.
ThesizeoftheUnitedStates'economycanbemeasuredusingparameterssuchasGDP(GrossDomesticProduct)GNP(GrossNationalProduct)isdifferentfromGDPwithrespecttoinclusionofincomeearnedabroad.
GDPstickstowithinthedomicileofthenation.
Thesizesoftheeconomiesof20nationsthatmeetregularlyasG20arelistedinTable2.
0.
The19nations,otherthantheEuropeanUnion,arelistedaccordingtothesizesoftheireconomies.
ThenumbersinTable2.
0weredevelopedbythepriceslaiddownbytheIMF,theInternationalMonetaryFund,fortheyear2008.
Chapter1.
0OverviewofEngineeringEconomyorderineconomiesistouchedupon.
Life-cyclecostsofaviationlighting,LED,photocopier,HVACsystemsarediscussed.
Depreciation,taxes,replacementanalysisarediscussed.
UniqueFeaturesOptimizationconceptsarediscussedindetail.
Brainstormingcanbeusedtodevelopalternatesforagivenproblem.
Thefivemethodsofanalysis,PW,FW,AW,IRRandERRcanbeusedtoevaluatethealternates.
Evalua-tionofalternatescanbeusedtoinvestinthemoreprofitableprocess,selectionofthelowercostalternate,quantitatethesavingsaccruedfromimplementationofaprocessimprovementandassessmentofenvi-ronmentalimpactofchemicalprocesses.
Alternatescanbemutuallyexclusive,independentprojectsandscreeningbyothercriteria.
WhenthePWsofbothalternatesarewithin20%ofeachothertheprojectscanbeadjudgedastooclosetocallwithinthesensitivityoftheestimatesofthecapitalandoperatingexpensesandexpectedrevenues.
Rudimentsofhouseholdfinancearediscussed.
Thecapitalizationworthfactorsandsinkingfundfactorsarecalculatedandpresentedasannuitytablesaswellasingraphicalform.
InadditiontoP/A,F/A,A/F,A/P,F/P,P/Fclosedformanalyticalexpressionstocalculatetheinterestrate,iandpayperiod,Nhasbeendeveloped.
Benefit/CostRatioofpublicsectorprojectsarediscussedChapter1.
0|32|FundamentalsofEngineeringEconomicscertaininterestrateoveracertainprescribedperiodoftime.
Herearesomealternatesthatcanberesolvedintooneselectedforimplementationbyusingoneofthemethodsexplainedinlaterchapters:(i)TheinclusionofERfluids(electrorheologicalfluids)asautomatictransmissionfluidsbyChryslerCorp.
isgoingtoincreasethempgofthenewlinecalledDodgeCognizanceby15%.
Itextendsthelifeofthetransmissionby20,000miles.
Howmuchcanthecompanyaffordtospendinordertoimplementthisinvention(ii)Youarehiredbyaleadingcreditcardcompany,FordChaseBank.
Oneoftheirdirectors,JulieHollas,wantsyoutoperformasmallcalculationforher.
AcustomerwantstochargeaJapaneserobottohiscreditcard.
Thepriceoftherobot,includingsalestax,is$850.
50.
Howmanyyearswillittaketopayoffthecreditcardbalanceifthemonthlypaymentis$16.
70andtheannualizedcreditcardinterestrateis23%(iii)Gasolinepriceshaveskyrocketedinthenation.
Thenationalaveragepricepergallonofgasolinehasrisento$4.
Thepresidentisconsideringincreasingoff-shoredrillingtogetmoreoil.
Eachoilrigwouldcost$10million.
Itwouldrequire70,000oilrigstodeliver0.
5billiongallonsofgasforautomobileseveryweek.
Theutilitycostsrunto$120,000peryear.
Thesituationisexpectedtocontinueforthenextfouryears.
CalculatetheIRRforthisinvestment.
TheMARRcanbetakenas8.
0%.
(iv)Calculatethemonthlypaymentona2007ToyotaCorollacosting$12,999.
Another$1000wasneededtoobtainthetitle,licenseplate,andtaxes.
Aftercashdownof$1500,thenumberofpayperiodswas72months.
Theinterestrateperannumis7%.
A$2500one-timechargeforpowertrainwarrantyupto100,000mileswasleviedupfront.
(v)AliceJonesoperatesaflowershopindowntownHouston.
Itcostsher$5perdaytopaytherent,$1perdayforthewaterusedtopreservethefreshnessoftheflowers,and$2.
5perdayforairconditioningtheflowersperday.
ThecosttopluckandbringtheflowersfromthegardeninruralTexastoHoustoncityrunsheraquarterperflower.
Theprice-demandrelationfortheflowerstakestheformof:p=0.
65–0.
001DCalculatethebreak-evenpoints.
Constructthetotalrevenueandtotalcostasafunctionofdemand,Dintheattachedgraphpaper.
WhatisthedemandatmaximumprofittoAlice(vi)K.
R.
Sridhar,CEOofBloomBox,wasfeaturedonCBS's60Minutes.
BloomBoxmakesmicropowerplantsusingSOFC,solidoxidefuelcelltechnology.
Abloomboxcanbepurchasedfor$3000.
Itconsistsofminiaturizedfuelcellsmadeofsilica.
Thecostofelectricitytopowerupanewhomewouldbe8.
0centsperkWh.
Shouldtheexistingutilitycompanycharge12.
5centsperkWh,calculatethenumberofyearsitwouldtakeforabloomboxtobeagoodinvestmentfornewhomeownerJackTripper.
JackTripperistheheadofafamilyof6memberswith4children.
Usethepresentworthmethodtoevaluatethesingleprojectofmicropowerplantsforindividualhomes.
Assumethat600kWhofelectricityisconsumedeverymonthattheTripperresidence.
(i=10%).
(vii)YouarehiredbyCowboyInvestmentsupongraduation.
Theyaredevelopinganewinvestmentplanforcustomersnamed"U-Pay-Now&I-Pay-Later.
"Thedealisthattheclientpays$500everymonthtoCowboyInvestments.
Afterasaidperiodinanumberofyears,CowboyInvestmentswillhavetheclientceasepaymentsandbegintoreceive$500everymonthforever.
At10%annualizedinterestrate(thehistoricperformanceofDowJones),howmanyyearswouldyourecommendbethesaidperiod(viii)Furniture-to-Stayoffersyouthefollowingdeal:Asofa,loveseat,andchairareavailablefor$1250.
Amattressisbuiltinwiththesofa,whichcanbepulledoutwhenyouhaveguestsover.
Thisisatanadditionalcostof$200.
Thedeliverychargeis$100anda3-yearwarrantyforstainresistanceisavailablefor$200.
Forthefirst3yearsthereisnointerestratecharged(i.
e.
,"NoInterest'Til2012").
Table2.
0GDPofG20Nations(PurchasingPowerParityorPPP)#NationGDP(inBillionsofUS$)PPP#NationGDP(inBillionsofUS$)PPP1UnitedStates14,25611Mexico14662China790312SouthKorea13643Japan415913Canada12814India352614Indonesia9625Germany280615Turkey8806UnitedKingdom213916Australia8517Italy211817Argentina5848Russia211018SouthAfrica4939France210819SaudiArabia37010Brazil201320EuropeanUnion+14,793ThecombinedGDPof19nationslistedinTable2.
0isabout51trillionUSdollars.
Thisisasignificantportionoftheworldeconomy.
Currencyexchangeratesusedtobebaseduponthewealthofnationsasmeasuredbytheamountofgoldeachnationpossessed.
Thewealthofanationisnotthesameasthenation'seconomy.
Thecalculationofthesizeofeconomyvariesamongonemethodtoanother.
ThePPPmethodusedtocalculatethesizeoftheG20economieslistedinTable2.
0iscalledthePurchasingPowerParitymethod.
ThisideacanbetracedbacktotheSchoolofSalamancainthe16thcentury.
Theconceptstemsfromthedevelopmentofexchangeratesbetweentwocountriesbasedonlong-termconsiderationsofrelativepricelevelsbetweenthetwocountries.
Identicalgoodsareexpectedtohavethesamepriceandcannotvarywithmarkets.
AccordingtoWikipedia(2),morehaircutscanbepurchasedinThanjavur,India,for1USdollarthaninSanFrancisco,California.
ThePPPmethodprovidesforcost-of-livingdifferencesbetweendifferentregionsintheworld.
In2003,1US$wasequivalentto1.
8yuan(Chinese)usingPPPmethod.
Thenominalexchangerateis1US$exchangedat7.
6yuan(Chinese).
BasedonPPP,Chinaistheworld'ssecondlargesteconomyandIndiaistheworld'sfourthlargesteconomy.
Indiarecentlyadded100millioncellularphones.
Ithasthesecondlargestsugarproductionbythesugarcaneindustry.
ThecementandpaperindustriesarelargeinIndia.
ThepopulationofbothChinaandIndiaaremorethan1billioneach.
Whentheeconomicactivitiesofallpeoplearetakenintoaccount,thesizesoftheireconomiesgothroughasuddenjumpinvalue!
AccordingtoMahatmaGandhi,Indiaconsistedof300,000villagesduringthefreedomstrugglefromGreatBritain.
Accordingtothe2001Indiacensus,74%ofIndianslivein638,365differentvillages.
Themiddle-classwalletinIndiaisbulging.
Theworld'sleastexpensivecarwaslaunchedrecentlyinIndia:TataNanocanbepickedupforRs.
1lakh(nominallyabout2105US$).
ThediscussionsofG20andaPPPmethodofcalculationareillustrativeoftheneedtobebetterinformedabouttheevaluationmethodsofeconomicalternativesofferedbyengineeringsolutions.
Thebasisusedforthecalculationsisimportant.
EngineeringEconomyisthestudyofthefeasibilityandevaluationofthecostofpossiblesolutionstoengineer-ingproblems.
Whenbenefitsoutweighcosts,thealternatebecomesanacceptableone.
Thelowestcostamongalternatescanbeselectedbyusingdifferentmethodsdiscussedindetailinthetextbook.
ThisiscalculatedataTable1.
0Top20EngineeringAchievementsofthe20thCentury#Feat#Feat1Electrification11Highways2Automobile12Spacecraft3Airplane13Internet4WaterSupplyandDistribution14Imaging5Electronics15HouseholdAppliances6RadioandTelevision16HealthTechnologies7AgriculturalMechanization17PetroleumandPetrochemicalTechnologies8Computers18LaserandFiberOptics9Telephone19NuclearTechnologies10AirConditioningandRefrigeration20HighPerformanceMaterialsChapter1.
0|32|FundamentalsofEngineeringEconomicscertaininterestrateoveracertainprescribedperiodoftime.
Herearesomealternatesthatcanberesolvedintooneselectedforimplementationbyusingoneofthemethodsexplainedinlaterchapters:(i)TheinclusionofERfluids(electrorheologicalfluids)asautomatictransmissionfluidsbyChryslerCorp.
isgoingtoincreasethempgofthenewlinecalledDodgeCognizanceby15%.
Itextendsthelifeofthetransmissionby20,000miles.
Howmuchcanthecompanyaffordtospendinordertoimplementthisinvention(ii)Youarehiredbyaleadingcreditcardcompany,FordChaseBank.
Oneoftheirdirectors,JulieHollas,wantsyoutoperformasmallcalculationforher.
AcustomerwantstochargeaJapaneserobottohiscreditcard.
Thepriceoftherobot,includingsalestax,is$850.
50.
Howmanyyearswillittaketopayoffthecreditcardbalanceifthemonthlypaymentis$16.
70andtheannualizedcreditcardinterestrateis23%(iii)Gasolinepriceshaveskyrocketedinthenation.
Thenationalaveragepricepergallonofgasolinehasrisento$4.
Thepresidentisconsideringincreasingoff-shoredrillingtogetmoreoil.
Eachoilrigwouldcost$10million.
Itwouldrequire70,000oilrigstodeliver0.
5billiongallonsofgasforautomobileseveryweek.
Theutilitycostsrunto$120,000peryear.
Thesituationisexpectedtocontinueforthenextfouryears.
CalculatetheIRRforthisinvestment.
TheMARRcanbetakenas8.
0%.
(iv)Calculatethemonthlypaymentona2007ToyotaCorollacosting$12,999.
Another$1000wasneededtoobtainthetitle,licenseplate,andtaxes.
Aftercashdownof$1500,thenumberofpayperiodswas72months.
Theinterestrateperannumis7%.
A$2500one-timechargeforpowertrainwarrantyupto100,000mileswasleviedupfront.
(v)AliceJonesoperatesaflowershopindowntownHouston.
Itcostsher$5perdaytopaytherent,$1perdayforthewaterusedtopreservethefreshnessoftheflowers,and$2.
5perdayforairconditioningtheflowersperday.
ThecosttopluckandbringtheflowersfromthegardeninruralTexastoHoustoncityrunsheraquarterperflower.
Theprice-demandrelationfortheflowerstakestheformof:p=0.
65–0.
001DCalculatethebreak-evenpoints.
Constructthetotalrevenueandtotalcostasafunctionofdemand,Dintheattachedgraphpaper.
WhatisthedemandatmaximumprofittoAlice(vi)K.
R.
Sridhar,CEOofBloomBox,wasfeaturedonCBS's60Minutes.
BloomBoxmakesmicropowerplantsusingSOFC,solidoxidefuelcelltechnology.
Abloomboxcanbepurchasedfor$3000.
Itconsistsofminiaturizedfuelcellsmadeofsilica.
Thecostofelectricitytopowerupanewhomewouldbe8.
0centsperkWh.
Shouldtheexistingutilitycompanycharge12.
5centsperkWh,calculatethenumberofyearsitwouldtakeforabloomboxtobeagoodinvestmentfornewhomeownerJackTripper.
JackTripperistheheadofafamilyof6memberswith4children.
Usethepresentworthmethodtoevaluatethesingleprojectofmicropowerplantsforindividualhomes.
Assumethat600kWhofelectricityisconsumedeverymonthattheTripperresidence.
(i=10%).
(vii)YouarehiredbyCowboyInvestmentsupongraduation.
Theyaredevelopinganewinvestmentplanforcustomersnamed"U-Pay-Now&I-Pay-Later.
"Thedealisthattheclientpays$500everymonthtoCowboyInvestments.
Afterasaidperiodinanumberofyears,CowboyInvestmentswillhavetheclientceasepaymentsandbegintoreceive$500everymonthforever.
At10%annualizedinterestrate(thehistoricperformanceofDowJones),howmanyyearswouldyourecommendbethesaidperiod(viii)Furniture-to-Stayoffersyouthefollowingdeal:Asofa,loveseat,andchairareavailablefor$1250.
Amattressisbuiltinwiththesofa,whichcanbepulledoutwhenyouhaveguestsover.
Thisisatanadditionalcostof$200.
Thedeliverychargeis$100anda3-yearwarrantyforstainresistanceisavailablefor$200.
Forthefirst3yearsthereisnointerestratecharged(i.
e.
,"NoInterest'Til2012").
Table2.
0GDPofG20Nations(PurchasingPowerParityorPPP)#NationGDP(inBillionsofUS$)PPP#NationGDP(inBillionsofUS$)PPP1UnitedStates14,25611Mexico14662China790312SouthKorea13643Japan415913Canada12814India352614Indonesia9625Germany280615Turkey8806UnitedKingdom213916Australia8517Italy211817Argentina5848Russia211018SouthAfrica4939France210819SaudiArabia37010Brazil201320EuropeanUnion+14,793ThecombinedGDPof19nationslistedinTable2.
0isabout51trillionUSdollars.
Thisisasignificantportionoftheworldeconomy.
Currencyexchangeratesusedtobebaseduponthewealthofnationsasmeasuredbytheamountofgoldeachnationpossessed.
Thewealthofanationisnotthesameasthenation'seconomy.
Thecalculationofthesizeofeconomyvariesamongonemethodtoanother.
ThePPPmethodusedtocalculatethesizeoftheG20economieslistedinTable2.
0iscalledthePurchasingPowerParitymethod.
ThisideacanbetracedbacktotheSchoolofSalamancainthe16thcentury.
Theconceptstemsfromthedevelopmentofexchangeratesbetweentwocountriesbasedonlong-termconsiderationsofrelativepricelevelsbetweenthetwocountries.
Identicalgoodsareexpectedtohavethesamepriceandcannotvarywithmarkets.
AccordingtoWikipedia(2),morehaircutscanbepurchasedinThanjavur,India,for1USdollarthaninSanFrancisco,California.
ThePPPmethodprovidesforcost-of-livingdifferencesbetweendifferentregionsintheworld.
In2003,1US$wasequivalentto1.
8yuan(Chinese)usingPPPmethod.
Thenominalexchangerateis1US$exchangedat7.
6yuan(Chinese).
BasedonPPP,Chinaistheworld'ssecondlargesteconomyandIndiaistheworld'sfourthlargesteconomy.
Indiarecentlyadded100millioncellularphones.
Ithasthesecondlargestsugarproductionbythesugarcaneindustry.
ThecementandpaperindustriesarelargeinIndia.
ThepopulationofbothChinaandIndiaaremorethan1billioneach.
Whentheeconomicactivitiesofallpeoplearetakenintoaccount,thesizesoftheireconomiesgothroughasuddenjumpinvalue!
AccordingtoMahatmaGandhi,Indiaconsistedof300,000villagesduringthefreedomstrugglefromGreatBritain.
Accordingtothe2001Indiacensus,74%ofIndianslivein638,365differentvillages.
Themiddle-classwalletinIndiaisbulging.
Theworld'sleastexpensivecarwaslaunchedrecentlyinIndia:TataNanocanbepickedupforRs.
1lakh(nominallyabout2105US$).
ThediscussionsofG20andaPPPmethodofcalculationareillustrativeoftheneedtobebetterinformedabouttheevaluationmethodsofeconomicalternativesofferedbyengineeringsolutions.
Thebasisusedforthecalculationsisimportant.
EngineeringEconomyisthestudyofthefeasibilityandevaluationofthecostofpossiblesolutionstoengineer-ingproblems.
Whenbenefitsoutweighcosts,thealternatebecomesanacceptableone.
Thelowestcostamongalternatescanbeselectedbyusingdifferentmethodsdiscussedindetailinthetextbook.
ThisiscalculatedataTable1.
0Top20EngineeringAchievementsofthe20thCentury#Feat#Feat1Electrification11Highways2Automobile12Spacecraft3Airplane13Internet4WaterSupplyandDistribution14Imaging5Electronics15HouseholdAppliances6RadioandTelevision16HealthTechnologies7AgriculturalMechanization17PetroleumandPetrochemicalTechnologies8Computers18LaserandFiberOptics9Telephone19NuclearTechnologies10AirConditioningandRefrigeration20HighPerformanceMaterialsChapter1.
0|54|FundamentalsofEngineeringEconomicsforago/no-godecisionwouldbe.
Theproblemcanbereformulatedandrestatedtoeasetheflowofalternates.
Anopenmindisrecommendedduringthedevelopmentofalternates.
Themethodmaynotbeusedtojustifyacertaincourseofaction.
FourrulesofbrainstormingweredictatedbyOsborn(4).
Theseareasfollows:(a)Negativefeedbackcanbecomeoverlycriticalandstiflecreativejuicesandalternatesfromflowing.
(b)Poet-likefreeflowofideasiswelcome.
(c)Quantitybreedsquality.
(d)Improvementcanbeaimed.
Combinationscanworkout.
Thebasicstepsofbrainstorminginclude:(a)PreliminaryDiscussion:Problemisstatedandparticipantsgetwarmedup.
Thisactsasapreludetothemainsession.
(b)BrainstormingMainSession:Anunrelatedproblemisfirstbrainstormed.
Thentheassignedproblemisbrainstormed.
Ideasareallowedtoflowandarerecordedobjectively.
(c)Theideasareevaluatedforpossiblefloweringintoalternates.
InPrinciple2,deviationanalysisisusedandthefocusisonthedifferences.
Thefutureoutcomesfromthealternatesaresetashigherpriority.
Basedondifferencesamongalternates,afuturecourseofactionisselected.
GoalsettingisextremelyimportantasemphasizedinPrinciple3.
Acommonunitofmeasure(suchasdollarsandcents)totalscostsortotalprofitsthatcanbegeneratedfromthealternateconsiderediscapturedinPrinciple4.
AllrelevantcriteriaasmentionedinPrinciple5areimportant.
Forinstance,retailgiantWal-Martpostslowpricesforitscustomers.
However,thecompanyhadtopayseveralmilliondollarsascompensationfordiscriminationbasedontheskincolorofanAfricanAmericanwoman.
Shewasapprehendedforforginghermoneyorder.
Later,shewasclearedofanywrongdoing.
TheCivilRightsActof1964,signedintolawbyPresidentLyndonB.
Johnson,mustbefollowedinallactivitiesoftheenterprise.
Therisksassumedinapotentialventuremustbeidentifiedandunderstood.
Thepayofforthereward-to-riskratiocanbeconsideredbeforetakingadecision.
OnecanfollowthePlan-Do-Check.
Theresultsfromimplementationoftheplancanbecheckedagainstgoalsidentified.
Ifneeded,theplancanberevised.
1.
3SummaryEngineeringisdefinedbyABET(AccreditationforEngineeringandTechnology)astheprofessioninwhichtheknowledgegainedinphysics,chemistry,lifesciences,andmathematicsisappliedtomakeproductsinlargescalethatincreasetheprosperityofman.
Thismustbeachievedwithajudiciouschoiceofmaterials,atthelowestcostinamannerthatisbenigntotheenvironment,andthatkeepsallthestakeholderssafe.
Economyconsistsofthesumtotalofallincomefromgoodsproducedandservicesofferedinastateornation.
Itdealswiththeinteractionsbetweenpeopleandwealth.
EngineeringEconomyisthestudyofthefeasibilityandevaluationofthecostofpos-siblesolutionstoengineeringproblems.
Whenbenefitsoutweighcosts,thealternatebecomesanacceptableone.
Thelowestcostamongalternatescanbeselectedbyusingdifferentmethodsdiscussedindetailinthetextbook.
Examplesofalternatesaregivensuchaselectrorheologicalfluidsforautomatictransmissionfluid,apay-offperiodforaJapaneserobotusingacreditcard,off-shoredrilling,monthlycarpayment,flowershop,micropowerplant,pay-now-cash-in-laterschemes,deferredinterest,solarpanels,overnightmaildelivery,useofrobotsinassemblylinesinplaceoflabor,collegecomputerlabhelpdesk,etc.
TheGDPofnationsisdiscussed.
Thetopengineeringachievementsofthe20thcenturyarelisted.
Forthefollowingthreeyears,anannualizedinterestrateof12%ischarged.
Calculatethemonthlypaymentover6years.
(ix)SamMaloneisconsideringwhethertoinvestinsolarpanels.
Thishomeownerhasgatheredthefollowinginformationforhistown:(a)Averagecostofresidentialenergyis12centsperkWh(b)Governmentsubsidyrunsto60%ofinvestmentbyhomeowner(c)Eachsquarefootofpanelproduces18kWheveryyearandthecostofinstallationpersquarefootofsolarpanelis$99.
Samhas385sq.
ft.
ofroofspace.
Whatisthebreak-evenpointinyearsfortheinstallationofsolarpanelsAssumeaninterestrateof5%peryear.
(x)Shouldovernightdeliverycouriermailbeconductedusingairplanesflownbypilotsorpersonalrapidtransitsystemswithoutonboardoperators(xi)Shouldassemblylinesforputtingtogetherdesktopcomputersbefilledwithworkersorbyautomatedrobots(xii)ShouldcollegecomputerlabsbeservicedusingahotlineorbyamannedcomputerhelpdeskExample1.
0StartofTechnocratsofTexasAteamofalumniandfacultyfromaleadinguniversityinTexasconceivedabusinessplantodevelopaconsultingserviceonhowtoassess,prevent,andremediatethedamagecausedbyoilspillssuchastherecentonebyBPAmericainHouston.
Onehundredprofessionalsandtechniciansaregoingtojointheventure.
AnewbuildingisobtainedatleaseinHempstead,Texas.
Howwouldyoudevelopthealternatesforsettinguptheutilities,suchaselectrificationofthebuildingAlternateA:TosignupwithcompaniessuchasReliantEnergyunderoneoftheirplans.
AlternateB:Toinstallsolarpanelsandgeneratealltheelectricityneedsoftheenterprise.
AlternateC:Tobuyenoughfuelcellsandinstallamicropowerplanttomeetalltheelectricityneedsoftheenterprise.
1.
2SevenPrinciplesofEngineeringEconomyThefoundationofthedisciplineofEngineeringEconomycanbeseenintermsofsevenprinciples(3).
Thesesevenprinciplesare:1.
0MakeaListofAlternates:PlanA,PlanB,etc.
2.
0WhatIsDifferentamongtheAlternates3.
0BeClearonWhatYouWant.
4.
0DevelopCommonPerformanceMeasures.
5.
0MeetALLRelevantCriteria.
6.
0WeightheRiskAgainsttheProjectedRewards.
7.
0ChecktheResultsofActionPlanandRevisePlanIf/WhenNecessary.
Thedecisionhastocomefromthealternatesdeveloped.
Thealternatescanbedevelopedusingabrainstorm-ingsession.
Themorecreativeandresourcefultheteammembersare,thebettertheselectionofalternatesavailableChapter1.
0|54|FundamentalsofEngineeringEconomicsforago/no-godecisionwouldbe.
Theproblemcanbereformulatedandrestatedtoeasetheflowofalternates.
Anopenmindisrecommendedduringthedevelopmentofalternates.
Themethodmaynotbeusedtojustifyacertaincourseofaction.
FourrulesofbrainstormingweredictatedbyOsborn(4).
Theseareasfollows:(a)Negativefeedbackcanbecomeoverlycriticalandstiflecreativejuicesandalternatesfromflowing.
(b)Poet-likefreeflowofideasiswelcome.
(c)Quantitybreedsquality.
(d)Improvementcanbeaimed.
Combinationscanworkout.
Thebasicstepsofbrainstorminginclude:(a)PreliminaryDiscussion:Problemisstatedandparticipantsgetwarmedup.
Thisactsasapreludetothemainsession.
(b)BrainstormingMainSession:Anunrelatedproblemisfirstbrainstormed.
Thentheassignedproblemisbrainstormed.
Ideasareallowedtoflowandarerecordedobjectively.
(c)Theideasareevaluatedforpossiblefloweringintoalternates.
InPrinciple2,deviationanalysisisusedandthefocusisonthedifferences.
Thefutureoutcomesfromthealternatesaresetashigherpriority.
Basedondifferencesamongalternates,afuturecourseofactionisselected.
GoalsettingisextremelyimportantasemphasizedinPrinciple3.
Acommonunitofmeasure(suchasdollarsandcents)totalscostsortotalprofitsthatcanbegeneratedfromthealternateconsiderediscapturedinPrinciple4.
AllrelevantcriteriaasmentionedinPrinciple5areimportant.
Forinstance,retailgiantWal-Martpostslowpricesforitscustomers.
However,thecompanyhadtopayseveralmilliondollarsascompensationfordiscriminationbasedontheskincolorofanAfricanAmericanwoman.
Shewasapprehendedforforginghermoneyorder.
Later,shewasclearedofanywrongdoing.
TheCivilRightsActof1964,signedintolawbyPresidentLyndonB.
Johnson,mustbefollowedinallactivitiesoftheenterprise.
Therisksassumedinapotentialventuremustbeidentifiedandunderstood.
Thepayofforthereward-to-riskratiocanbeconsideredbeforetakingadecision.
OnecanfollowthePlan-Do-Check.
Theresultsfromimplementationoftheplancanbecheckedagainstgoalsidentified.
Ifneeded,theplancanberevised.
1.
3SummaryEngineeringisdefinedbyABET(AccreditationforEngineeringandTechnology)astheprofessioninwhichtheknowledgegainedinphysics,chemistry,lifesciences,andmathematicsisappliedtomakeproductsinlargescalethatincreasetheprosperityofman.
Thismustbeachievedwithajudiciouschoiceofmaterials,atthelowestcostinamannerthatisbenigntotheenvironment,andthatkeepsallthestakeholderssafe.
Economyconsistsofthesumtotalofallincomefromgoodsproducedandservicesofferedinastateornation.
Itdealswiththeinteractionsbetweenpeopleandwealth.
EngineeringEconomyisthestudyofthefeasibilityandevaluationofthecostofpos-siblesolutionstoengineeringproblems.
Whenbenefitsoutweighcosts,thealternatebecomesanacceptableone.
Thelowestcostamongalternatescanbeselectedbyusingdifferentmethodsdiscussedindetailinthetextbook.
Examplesofalternatesaregivensuchaselectrorheologicalfluidsforautomatictransmissionfluid,apay-offperiodforaJapaneserobotusingacreditcard,off-shoredrilling,monthlycarpayment,flowershop,micropowerplant,pay-now-cash-in-laterschemes,deferredinterest,solarpanels,overnightmaildelivery,useofrobotsinassemblylinesinplaceoflabor,collegecomputerlabhelpdesk,etc.
TheGDPofnationsisdiscussed.
Thetopengineeringachievementsofthe20thcenturyarelisted.
Forthefollowingthreeyears,anannualizedinterestrateof12%ischarged.
Calculatethemonthlypaymentover6years.
(ix)SamMaloneisconsideringwhethertoinvestinsolarpanels.
Thishomeownerhasgatheredthefollowinginformationforhistown:(a)Averagecostofresidentialenergyis12centsperkWh(b)Governmentsubsidyrunsto60%ofinvestmentbyhomeowner(c)Eachsquarefootofpanelproduces18kWheveryyearandthecostofinstallationpersquarefootofsolarpanelis$99.
Samhas385sq.
ft.
ofroofspace.
Whatisthebreak-evenpointinyearsfortheinstallationofsolarpanelsAssumeaninterestrateof5%peryear.
(x)Shouldovernightdeliverycouriermailbeconductedusingairplanesflownbypilotsorpersonalrapidtransitsystemswithoutonboardoperators(xi)Shouldassemblylinesforputtingtogetherdesktopcomputersbefilledwithworkersorbyautomatedrobots(xii)ShouldcollegecomputerlabsbeservicedusingahotlineorbyamannedcomputerhelpdeskExample1.
0StartofTechnocratsofTexasAteamofalumniandfacultyfromaleadinguniversityinTexasconceivedabusinessplantodevelopaconsultingserviceonhowtoassess,prevent,andremediatethedamagecausedbyoilspillssuchastherecentonebyBPAmericainHouston.
Onehundredprofessionalsandtechniciansaregoingtojointheventure.
AnewbuildingisobtainedatleaseinHempstead,Texas.
Howwouldyoudevelopthealternatesforsettinguptheutilities,suchaselectrificationofthebuildingAlternateA:TosignupwithcompaniessuchasReliantEnergyunderoneoftheirplans.
AlternateB:Toinstallsolarpanelsandgeneratealltheelectricityneedsoftheenterprise.
AlternateC:Tobuyenoughfuelcellsandinstallamicropowerplanttomeetalltheelectricityneedsoftheenterprise.
1.
2SevenPrinciplesofEngineeringEconomyThefoundationofthedisciplineofEngineeringEconomycanbeseenintermsofsevenprinciples(3).
Thesesevenprinciplesare:1.
0MakeaListofAlternates:PlanA,PlanB,etc.
2.
0WhatIsDifferentamongtheAlternates3.
0BeClearonWhatYouWant.
4.
0DevelopCommonPerformanceMeasures.
5.
0MeetALLRelevantCriteria.
6.
0WeightheRiskAgainsttheProjectedRewards.
7.
0ChecktheResultsofActionPlanandRevisePlanIf/WhenNecessary.
Thedecisionhastocomefromthealternatesdeveloped.
Thealternatescanbedevelopedusingabrainstorm-ingsession.
Themorecreativeandresourcefultheteammembersare,thebettertheselectionofalternatesavailableChapter1.
0|76|FundamentalsofEngineeringEconomics13.
0AboutfiveyearsagotheridesatAstroWorldweredismantledandthe104acreshousingtheamusementparkwereleftbarren.
FortWorthInvestmentPartnershiphaspurchasedthepropertyrecently.
Theundisclosedpurchasepricecanbeestimatedat$100million.
TheoldAstroWorldpropertysitsacrossLoop610fromReliantParkandnearalight-railstop.
Developalternatesforuseofthisland.
Choosefromrealestatedevelopment,hoteldevelopment,amusementpark,horseracingtrack,etc.
14.
0Developalternatesforthefollowingscenario:EnterpriseProductsPartnersandDuncanEnergypartnershaveannouncedthatAcadianGashasenteredintoanadditionallong-termcontractwithashippertotransportnaturalgasonAcadian'sHaynesvilleExtensionpipeline,nowunderconstruction.
Itincreasestotalcapacitycommitmentsby200millioncu.
ft.
perday.
Workonthe270-mileHaynesvilleExtensionisexpectedtobefinishedinthe3rdquarterof2011.
15.
0YouhavebeenawardedacontracttoprovidedesignandearlyengineeringservicesfordevelopmentoftheAraromiRefineryprojectinNigeria.
Youshallprovideservicesfora160,000barrel-per-dayGreenfieldrefineryandmarinefacilitythatwillproducemotorgasoline,automotivegasoil,andkeroseneandjetfuel.
Whatarethealternatesinordertodeliverthesameamountoffuelintermsofcalorificvalue16.
0RichardStockarrivedintheUnitedStatesfromGreatBritaininordertopursegraduatestudiesinchemicalengineering.
Hewantedtoapplyforacreditcard.
SelecttwoorthreefromthefollowingthatwouldbesuitablealternatesforRichard.
Discusswhichofthesevenprinciplesofengineeringeconomycanbeusedintheselection.
(1)Acreditcardisofferedbythelocalcreditunion.
Theinterestrateisattheprimelendingrate.
Thecreditlineislowat$1000.
(2)ChaseBankoffersacreditlineof$12,000,buttheinterestrateis24%.
(3)Macy'sdepartmentstoreoffersacreditlineof$10,000ataninterestrateof20%,butyouhavetoshopatMacy'sstores.
Itisnotvalidinotherlocations.
(4)ChevronOilCo.
offersacreditcardthatoffersacreditlineof$2800ataninterestrateof10%.
(5)Thelocalbankofferspersonalloansupto$5000withcollateralofyourautomobile.
17.
0MaryCorleoneisreadytogotocollege.
TheEduservprovidesstudentloansatlowinterestrates.
Mary'sfriendiswillingtopayforhertuitionandlivingexpenses.
WellsFargoBankiswillingtogivepapaMichaelCorleoneahomeequityloanatlittleovertheprimeratetopayforhisdaughter'sThesevenprinciplesofengineeringeconomyare:(i)developalternates;(ii)differencesamongalternates;(iii)whatdoyouwant;(iv)developcommonperformancemeasures;(v)meetallrelevantcriteria;(vi)weightherisksagainsttheprojectedrewards;(vii)checktheresultsofactionplanandrevisetheplanifnecessary.
Brainstormingsessionscanbeusedtodevelopalternates.
Thefourrulesofbrainstormingarenottogivenegativefeedback;encouragepoet-likefreeflowofideas;quantitybreedsquality;andimprovementsandcombinationsaregood.
Themainstepsofbrainstorminginclude:(i)preliminarysession;(ii)brainstormingsession;(iii)evaluationofideasanddevelopmentofalternates.
1.
4References1.
G.
ConstableandB.
Somerville,ACenturyofInnovation:TwentyEngineeringAchievementsThatTransformedOurLives.
TheNationalAcademiesPress(2003),Washington,DC.
2.
http://en.
wikepedia.
org/wiki/Purchasing_power-parity.
3.
W.
G.
Sullivan,E.
M.
Wicks,andC.
P.
Koelling,EngineeringEconomy,14thEdition.
PearsonPrenticeHall(2009),UpperSaddleRiver,NJ.
4.
A.
F.
Osborn,AppliedImagination,3rdEdition.
CharlesScribner'sSons(1963),NewYork,NY.
5.
HoustonChronicle,Sunday,June6th2010,D2ofBusinessSection.
1.
5Exercises1.
0WhatarethedifferencesbetweenGDPandGNP2.
0Whatistheconnectionbetweenanation'sGDPanditswealth3.
0BasedonPPP(PurchasingPowerParity),ChinaandIndiamovedupintherankingsbasedonthesizeofanation'sGDP,whileAustraliamoveddown.
Whyisthis4.
0Whatisengineering,whatiseconomy,andwhatisengineeringeconomy5.
0Whataretherulesofbrainstorming6.
0Whichoftheprinciplesofengineeringeconomyisrequiredbylaw7.
0Whatdoesthe"Plan-Do-Check"cyclemean8.
0Whyshouldrisksbeweighedagainstrewards9.
0Whatistheimportanceofacommonunitofmeasure10.
0WhyshouldaconsistentviewpointbemaintainedwhencomparingalternatesProblems11.
0RahallGandhihaspurchasedanewhomeinFairfield,Texas.
Thepriceofthe1776sq.
ft.
homeis$131,000.
DevelopthealternatesforMr.
Gandhitobuyhomeowner'sinsuranceforhazardssuchasfloods,fire,hurricane,windstorm,etc.
(Hint:considerdeductibles).
12.
0Afterstarringinasummerblockbusterfilm,actressJuliaRobertsexplorespurchasingamansionnearHouston.
Sheiswillingtosignamortgageamountupto$1.
5million.
ActionMortgagegivesout15-yearloansover$417,000at5.
6255%fixedrate.
DevelopthealternatesforJuliatoapplyforthemortgage.
ConsiderationmaybegiventoanARM(adjustableratemortgage),fixed-rate30-yearmortgage,fixed-rate15-yearmortgage,orFHA(federalhousingloan).
SomeofthelendersandratesofferedareshowninTable3.
0(5).
Table3.
0MortgageInterestRateList#Lender15-yrloansover$417,00030-yrloansover$417,0001ActionMortgage5.
125%5.
625%2AllegianceFinancialServices5.
375%6.
125%3HomeLoanSpecialists5.
0%5.
75%4MortgageAssociates6.
25%6.
75%5ResidentialFinance6.
75%7.
0%6TexasMortgageLink7.
0%7.
375%Chapter1.
0|76|FundamentalsofEngineeringEconomics13.
0AboutfiveyearsagotheridesatAstroWorldweredismantledandthe104acreshousingtheamusementparkwereleftbarren.
FortWorthInvestmentPartnershiphaspurchasedthepropertyrecently.
Theundisclosedpurchasepricecanbeestimatedat$100million.
TheoldAstroWorldpropertysitsacrossLoop610fromReliantParkandnearalight-railstop.
Developalternatesforuseofthisland.
Choosefromrealestatedevelopment,hoteldevelopment,amusementpark,horseracingtrack,etc.
14.
0Developalternatesforthefollowingscenario:EnterpriseProductsPartnersandDuncanEnergypartnershaveannouncedthatAcadianGashasenteredintoanadditionallong-termcontractwithashippertotransportnaturalgasonAcadian'sHaynesvilleExtensionpipeline,nowunderconstruction.
Itincreasestotalcapacitycommitmentsby200millioncu.
ft.
perday.
Workonthe270-mileHaynesvilleExtensionisexpectedtobefinishedinthe3rdquarterof2011.
15.
0YouhavebeenawardedacontracttoprovidedesignandearlyengineeringservicesfordevelopmentoftheAraromiRefineryprojectinNigeria.
Youshallprovideservicesfora160,000barrel-per-dayGreenfieldrefineryandmarinefacilitythatwillproducemotorgasoline,automotivegasoil,andkeroseneandjetfuel.
Whatarethealternatesinordertodeliverthesameamountoffuelintermsofcalorificvalue16.
0RichardStockarrivedintheUnitedStatesfromGreatBritaininordertopursegraduatestudiesinchemicalengineering.
Hewantedtoapplyforacreditcard.
SelecttwoorthreefromthefollowingthatwouldbesuitablealternatesforRichard.
Discusswhichofthesevenprinciplesofengineeringeconomycanbeusedintheselection.
(1)Acreditcardisofferedbythelocalcreditunion.
Theinterestrateisattheprimelendingrate.
Thecreditlineislowat$1000.
(2)ChaseBankoffersacreditlineof$12,000,buttheinterestrateis24%.
(3)Macy'sdepartmentstoreoffersacreditlineof$10,000ataninterestrateof20%,butyouhavetoshopatMacy'sstores.
Itisnotvalidinotherlocations.
(4)ChevronOilCo.
offersacreditcardthatoffersacreditlineof$2800ataninterestrateof10%.
(5)Thelocalbankofferspersonalloansupto$5000withcollateralofyourautomobile.
17.
0MaryCorleoneisreadytogotocollege.
TheEduservprovidesstudentloansatlowinterestrates.
Mary'sfriendiswillingtopayforhertuitionandlivingexpenses.
WellsFargoBankiswillingtogivepapaMichaelCorleoneahomeequityloanatlittleovertheprimeratetopayforhisdaughter'sThesevenprinciplesofengineeringeconomyare:(i)developalternates;(ii)differencesamongalternates;(iii)whatdoyouwant;(iv)developcommonperformancemeasures;(v)meetallrelevantcriteria;(vi)weightherisksagainsttheprojectedrewards;(vii)checktheresultsofactionplanandrevisetheplanifnecessary.
Brainstormingsessionscanbeusedtodevelopalternates.
Thefourrulesofbrainstormingarenottogivenegativefeedback;encouragepoet-likefreeflowofideas;quantitybreedsquality;andimprovementsandcombinationsaregood.
Themainstepsofbrainstorminginclude:(i)preliminarysession;(ii)brainstormingsession;(iii)evaluationofideasanddevelopmentofalternates.
1.
4References1.
G.
ConstableandB.
Somerville,ACenturyofInnovation:TwentyEngineeringAchievementsThatTransformedOurLives.
TheNationalAcademiesPress(2003),Washington,DC.
2.
http://en.
wikepedia.
org/wiki/Purchasing_power-parity.
3.
W.
G.
Sullivan,E.
M.
Wicks,andC.
P.
Koelling,EngineeringEconomy,14thEdition.
PearsonPrenticeHall(2009),UpperSaddleRiver,NJ.
4.
A.
F.
Osborn,AppliedImagination,3rdEdition.
CharlesScribner'sSons(1963),NewYork,NY.
5.
HoustonChronicle,Sunday,June6th2010,D2ofBusinessSection.
1.
5Exercises1.
0WhatarethedifferencesbetweenGDPandGNP2.
0Whatistheconnectionbetweenanation'sGDPanditswealth3.
0BasedonPPP(PurchasingPowerParity),ChinaandIndiamovedupintherankingsbasedonthesizeofanation'sGDP,whileAustraliamoveddown.
Whyisthis4.
0Whatisengineering,whatiseconomy,andwhatisengineeringeconomy5.
0Whataretherulesofbrainstorming6.
0Whichoftheprinciplesofengineeringeconomyisrequiredbylaw7.
0Whatdoesthe"Plan-Do-Check"cyclemean8.
0Whyshouldrisksbeweighedagainstrewards9.
0Whatistheimportanceofacommonunitofmeasure10.
0WhyshouldaconsistentviewpointbemaintainedwhencomparingalternatesProblems11.
0RahallGandhihaspurchasedanewhomeinFairfield,Texas.
Thepriceofthe1776sq.
ft.
homeis$131,000.
DevelopthealternatesforMr.
Gandhitobuyhomeowner'sinsuranceforhazardssuchasfloods,fire,hurricane,windstorm,etc.
(Hint:considerdeductibles).
12.
0Afterstarringinasummerblockbusterfilm,actressJuliaRobertsexplorespurchasingamansionnearHouston.
Sheiswillingtosignamortgageamountupto$1.
5million.
ActionMortgagegivesout15-yearloansover$417,000at5.
6255%fixedrate.
DevelopthealternatesforJuliatoapplyforthemortgage.
ConsiderationmaybegiventoanARM(adjustableratemortgage),fixed-rate30-yearmortgage,fixed-rate15-yearmortgage,orFHA(federalhousingloan).
SomeofthelendersandratesofferedareshowninTable3.
0(5).
Table3.
0MortgageInterestRateList#Lender15-yrloansover$417,00030-yrloansover$417,0001ActionMortgage5.
125%5.
625%2AllegianceFinancialServices5.
375%6.
125%3HomeLoanSpecialists5.
0%5.
75%4MortgageAssociates6.
25%6.
75%5ResidentialFinance6.
75%7.
0%6TexasMortgageLink7.
0%7.
375%Chapter2.
0|98|FundamentalsofEngineeringEconomicscollegeeducation.
DevelopthealternatesavailabletoMarytoobtainthefinancialresourcesneededtopayforcollegetuition.
18.
0UpongraduationyouhavebeenhiredbyConsolidationCoalCo.
Thecoalcontains3%sulfur-containingcompounds.
Whencoal-firedsteamboilersareusedtoraisesteam,whichisthenusedtoturnturbinesthatareusedtoraiseelectricity,thesulfurcancauseSO2emissionsthatcanpollutetheatmosphere.
Onewaytokeeptheenvironmentcleanistoremovethesulfurfromthecoalfuelbeforeusage.
Anothermethodwouldbetoscrubthegasesfromtheboilerplantusingcalciumoxidelining.
CaOwouldreactwithSO2toformCaSO4.
Theexitgaseswouldbedevoidofsulfurdioxide.
Pyropowerhasdevelopedafluidizedbedcombustor(FBC)thatmixesthecoalandCaOandthenthecombustionprocesstakesplace.
TheSO2andotherSOxgasesarecapturedinsituintheFBC.
Developthealternatesforcleancoaltechnologies.
Whichofthesevenprincipleswasusedintheanalysis19.
0AnitaMurthywantedtovisitwithAnnTatagliainBoston.
AnitahastotravelfromMorgantown,WestVirginia.
ShecalleduptheHertzcarrentalcompany,whowouldallowhertorentanewcarforaweek.
Anitawillpayforthegas,andtherearenocapsonthedrivingmileage.
AGreyhoundbuscantakeherfromMorgantowntoPittsburgh.
ShecanalsoflyContinentalAirlinesfromPittsburghtoBoston.
FromLoganAirport,AnitacanhailataxicabtoAnn'splace.
Herfriend'sfriendcandriveherinhiscartoBoston.
DevelopthealternatesforAnitatotraveltoAnnTataglia'sinBoston.
VictorWhitingwasplanningonhavingsixguestsoverathisnewhomeinCypress,Texas.
20.
0HecanpurchasePillsburyflourandarecipebookfromWal-Martandbakehisownbreadinabreadmaker.
ThePepperidgeFarmtruckdeliversfreshloavesMondaysandThursdays.
WhatarethealternatesformakingbreadavailableforMr.
Whiting'sguests11.
0GeorgeTataseoboughtanewcarthatcanrunondifferentfuels.
Heknowsagaspumpthatsuppliesfuelatthefollowingprices:Gasoline$2.
49pergallonDiesel$2.
00pergallonEthanol-GasolineBlend,E20$1.
75pergallonIfGeorge'sDodgeColtgavehim30mpg,howmuchmoneycanbesavedbyusingE20insteadofgasolineordieselwhendriving28,600milesChapter2.
0FixedandVariableCostsLearningObjectivesDelineateDirectandIndirectCostsFamiliaritywithCashCost,BookCost,SunkCost,andOpportunityCostFixed,Variable,andIncrementalCostsLifeCycleofEnterpriseTotalCost,TotalRevenue,andProfitBreak-EvenAnalysisSecondBreak-EvenPoint—WhatDoesThisMean2.
1One-TimeandRecurringCostsAneminentexpertinthefieldofbusinessadministrationdefinestheABCsoftheMBAprogramas:(i)Accounting;(ii)Finance;and(iii)Economics.
Executivestendingtodowellwithlimitedresourcesusuallythankaccountantsforwheretheyderivedtheircriticalinformation.
Soundaccountingpracticesneedagoodunderstandingofcostingprinciples.
Thetypesofcostscanbedelineatedbasedonthefrequencyoftheiroc-currence.
Forinstance,fixedcostsareusuallyone-timeoccurrences.
Variablecostsoccurmorefrequently,usuallyonceeverybillingperiod.
Incrementalcostsarethosethatareincurredproportionallytothenumberofgoodsproduced.
Instancesoffixedcosts,variablecosts,andincrementalcostscanbeseeninExample2.
1.
IntheGarlicBreadNibblersnackfactoryasdiscussedbelowinExample2.
1,thefollowingareexamplesoffixedcosts:PropertyTaxEquipmentCostofKneaderEquipmentCostofMixerEquipmentCostofChopperEquipmentCostofRoasterEquipmentCostofColoringBowlInsuranceFeesInterestonBorrowedCapitalGeneralManagement&AdministrationSalaries.