Engineering Managerial Economic Decision and Risk Analysis: Economic Decision-Making and Risk Analysis

Preface
	Features of This Book
	Course Coverage
Contents
Part I Economic Context of Engineering Management Decision
1 Managerial Economics of Engineering Organizations
	1.1 Introduction
	1.2 Engineering and Engineering Management
	1.3 Types of Business Organizations
	1.4 Engineering Economic Decisions
	1.5 Engineering Economic Principles
	1.6 Engineering Life Cycle Costs
	1.7 Engineering Life Cycle Cost Management
	1.8 Budgeting for Engineering Operations and Projects
	1.9 Summary
	1.10 Key Terms
2 General Accounting and Finance Fundamentals
	2.1 Introduction
	2.2 Sources of Operations Financing
	2.3 The Role of Accounting in the Organization
	2.4 The Balance Sheet
	2.5 The Income Statement
	2.6 The Retained Earnings Statement
	2.7 The Cash Flow Income Statement
	2.8 Financial Ratios Important to Engineering Managerial Economics
	2.9 Financial Ratios—Measuring Organizational Health and Performance
		2.9.1 Liquidity Ratios
		2.9.2 Asset Management Ratios
		2.9.3 Debt Management Ratios
		2.9.4 Profitability Ratios
		2.9.5 Market Value Ratios
	2.10 Integrated Ratio Analysis
	2.11 Summary
	2.12 Key Terms
3 Cost Accounting Fundamentals
	3.1 Introduction
	3.2 Cost Terms and Purposes
	3.3 Cost Accounting in the Organization
	3.4 Cost Accounting—Material and Component Analysis
	3.5 Cost Accounting—Labor Analysis
	3.6 Cost Accounting—Overhead Cost Allocation
	3.7 Summary
	3.8 Key Terms
4 Cost Estimating Fundamentals
	4.1 Introduction
	4.2 Cost Estimating Accuracy
	4.3 Cost Models
	4.4 Cost Estimating Process
	4.5 Product Costing
	4.6 Operation Costing
	4.7 Cost Estimating Models
	4.8 Summary
	4.9 Key Terms
Part II Economic Analysis of Engineering Activities and Projects
5 Time Value of Money
	5.1 Interest Equivalence
	5.2 Cash Flow Transactions with Interest
	5.3 Cash Flow Income Statement
	5.4 Single Payment Discrete Cash Flow Compounding
	5.5 Four Methods of Debt Repayment
		5.5.1 Payment Series Discrete Cash Flow Compounding
	5.6 Compounding Periods and Payment Periods Differ
	5.7 Nominal and Effective Interest Rates
	5.8 Continuous Cash Flow Compounding
	5.9 Spreadsheets for Economic Analysis
	5.10 Summary
	5.11 Key Terms
6 Measures of Investment Worth
	6.1 Investment Time Periods
	6.2 Undiscounted Payback Period
	6.3 Discounted Payback Period
	6.4 Net Present Worth
	6.5 Equivalent Uniform Annual Worth
	6.6 Future Worth
	6.7 Internal Rate of Return
	6.8 Investment Worth Metrics Under Differing Project Life Analysis Periods
	6.9 Investment Worth Metrics in Spreadsheet Analyses
	6.10 Spreadsheets for Alternatives with Multiple Rate-of-Returns
	6.11 Summary
	6.12 Key Terms
7 Depreciation Effects on Investment Worth
	7.1 Depreciation Fundamentals
		7.1.1 US Tax Code Depreciation Fundamentals
		7.1.2 Depreciation Estimation Fundamentals
	7.2 Historical Depreciation Methods
		7.2.1 Straight-Line Depreciation
		7.2.2 Sum-of-Years-Digits Depreciation
		7.2.3 Declining Balance Depreciation
	7.3 Modified Accelerated Cost Recovery System (MACRS)
	7.4 Depreciation at Asset Disposal
	7.5 Unit-of-Production Depreciation
	7.6 Depletion
		7.6.1 Cost Depletion Method
		7.6.2 Percentage Depletion Method
	7.7 Spreadsheets and Depreciation
	7.8 Summary
	7.9 Key Terms
8 Tax Effects on Engineering Investments
	8.1 Classification of Taxable Income
	8.2 Economic Analysis Taking Taxes into Account
		8.2.1 Combined Federal and State Income Taxes
	8.3 Capital Gains and Losses for Non-depreciated Assets
	8.4 After-Tax Cash Flows with Spreadsheets
	8.5 Summary
	8.6 Key Terms
9 Inflation Effects on Engineering Investments
	9.1 The Meaning and Effect of Inflation on Investment Worth
	9.2 Incorporating Inflation in Engineering Managerial Economic Estimates
	9.3 Investment Analysis in Real Dollars Versus Actual Dollars
	9.4 Cash Flows That Inflate at Different Rates
	9.5 Different Inflation Rates Per Period
	9.6 Geometric Mean Inflation Rate
	9.7 Price and Cost Change with Indexes
	9.8 Inflation Effect on After-Tax Calculations
	9.9 Summary
	9.10 Key Terms
10 Incremental Analysis
	10.1 Introduction
	10.2 Graphical Incremental Rate of Return Sensitivity Analysis
	10.3 Challenger–Defender Incremental Rate of Return Analysis
	10.4 Observations on Incremental Rate of Return Analysis
	10.5 Summary
	10.6 Key Terms
11 Replacement Analysis
	11.1 The Replacement Problem
	11.2 Economic Service Life of an Asset
	11.3 Tax Laws Affecting Replacement Analysis
	11.4 Planning Horizon
	11.5 Closing Comments on Replacement Analysis
	11.6 Summary
	11.7 Key Terms
Part III Managing Engineering Investments
12 Determining the Appropriate MARR
	12.1 Risk–Return Fundamentals
	12.2 Sources of Financing
	12.3 Cost of Financing and Investment Opportunities
		12.3.1 Weighted Average Cost of Capital
		12.3.2 Weighted Marginal Cost of Capital
		12.3.3 Opportunity Cost of Capital
	12.4 Closing Comments on Determination of MARR
	12.5 Summary
	12.6 Key Terms
13 Capital Budgeting Engineering Investments
	13.1 Capital Expenditure for Project Proposals
	13.2 Rationing Capital by Rate of Return
	13.3 Rationing Capital by Net Present Worth
	13.4 Ranking Project Proposals
	13.5 Summary
	13.6 Key Terms
14 Benefit–Cost Ratio Analysis
	14.1 Characteristics of Major Service Systems
	14.2 Economic Evaluation of Services
	14.3 Selecting the Appropriate Interest Rate
		14.3.1 Public Sector Internal Rate of Return
		14.3.2 Public Sector Opportunity Cost
	14.4 Cost-Effectiveness Analysis
	14.5 Cost-Utility Analysis
	14.6 Benefit–Cost Ratio Analysis
	14.7 Incremental Benefit–Cost Ratio Analysis
	14.8 Factors Affecting Benefit–Cost Ratio Analysis Decisions
		14.8.1 Public Sector Investment Financing
		14.8.2 Public Sector Investment Life Cycle
		14.8.3 Quantifying Benefits and Disbenefits
		14.8.4 Public Sector Politics and Policies
	14.9 Summary
	14.10 Key Terms
15 Introduction to Management Economic Decision Theory and Risk Analysis
	15.1 Elements of Engineering Managerial Economic Decisions
	15.2 Probability and Statistics Concepts for Management Economic Decisions
	15.3 Structuring Decision Problems
	15.4 Sensitivity Analyses
	15.5 Decision Analysis
	15.6 Decision Tree Risk Simulation
	15.7 Summary
	15.8 Key Terms
Appendix A Use of the Microsoft® Excel® Compound Interest Calculator Spreadsheet
Appendix B Discrete Payment Compound Interest Factors
Appendix C Selected Discrete Payment Compound Interest Factors with Geometric Gradient Percentages
Appendix D Cumulative Standard Normal Distribution
Appendix E Fundamentals of Engineering (FE) Examination Example Questions
Bibliography
Index