Textbook

# Principles of Engineering Economic Analysis, 5th Edition

Principles of Engineering Economic Analysis, 5e provides a unified treatment of economic analysis principles and techniques from a cash flow perspective. This approach has been proven in the classroom and has been very successful in practice.  The fifth edition has been updated to include sample FE exam questions as well as shorter examples so that students can clearly understand the concepts.  Additionally, the text includes more use of spreadsheet software and more information on personal finance, helping students become even more familiar with the essentials an engineer needs to know when solving problems in the real world.

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Preface.

1. Engineering Economic Analysis.

1.1 Introduction.

1.2 Time Value of Money.

1.3 Ten Principles of Engineering Economic Analysis.

1.4 Systematic Economic Analysis Technique (SEAT).

1.5 When the Time Value of Money Need Not Be Considered.

1.6 Summary.

2. Time Value Of Money.

2.1 Introduction.

2.2 Cash Flow Diagrams.

2.3 Simple Interest Calculations.

2.4 Compound Interest Calculations.

2.5 Multiple Compounding Periods in a Year.

2.6 When Compounding and Cash Flow Frequencies Differ.

2.7 Special and Limiting Cases of Time Value of Money Factors.

2.7 Summary.

Appendix 2.A Continuous Compound Interest Calculations (brief treatment).

2.A.1 Discrete Cash Flows.

2.A.2 Continuous Cash Flows.

3. Borrowing, Lending, And Investing.

3.1 Introduction.

3.2 Four Methods of Repaying Loans.

3.3 Which Repayment Method Is Best for the Borrower?

3.4 Real Estate Investment.

3.5 Interest Payments and Principal Payments.

3.6 Retirement Planning.

3.7 Equivalence and Indifference.

3.9 Variable Interest Rates.

3.10 Summary.

4. Establishing The Planning Horizon And The Minimum Attractive Rate Of Return.

4.1 Introduction.

4.2 Choosing the Planning Horizon.

4.3 Specifying the Minimum Attractive Rate of Return.

4.4 Summary.

5. Present Worth Analysis.

5.1 Introduction.

5.2 Comparing Alternatives.

5.3 Present Worth: Single Alternative.

5.4 Present Worth: Multiple Alternatives.

5.5 Present Worth: “One Shot” Investments.

5.6 Discounted Payback Period: Single Alternative.

5.7 Discounted Payback Period: Multiple Alternatives.

5.8 Capitalized Worth: Single Alternative.

5.9 Capitalized Worth: Multiple Alternatives.

5.10 Summary.

6. Future Worth Analysis.

6.1 Introduction.

6.2 Future Worth: Single Alternative.

6.3 Future Worth: Multiple Alternatives.

6.4 Maximizing the Investment Portfolio.

6.5 More on Unequal Lives.

6.6 Summary.

7. Annual Worth Analysis.

7.1 Introduction.

7.2 Annual Worth: Equal Lives.

7.3 Annual Worth: Multiple Alternatives.

7.4 Least Common Multiple of Lives Assumption.

7.5 Unequal Lives Re-Visited.

7.6 Capital Recovery Cost.

7.7 Summary.

8. Rate Of Return Analysis.

8.1 Introduction.

8.2 Internal Rate of Return: Single Alternative.

8.3 Internal Rate of Return: Multiple Alternatives.

8.4 External Rate of Return: Single Alternative.

8.5 External Rate of Return: Multiple Alternatives.

8.6 Analyzing Alternatives with No Positive Cash Flows.

8.7 Summary.

Appendix 8.A Modified Internal Rate of Return.

8.A.1 Single Alternative.

8.A.2 Multiple Alternatives.

9. Depreciation Methods.

9.1 Introduction.

9.2 Background on Depreciation Accounting.

9.3 Straight Line Depreciation (SLN).

9.4 Declining Balance and Double Declining Balance Depreciation (DB and DDB).

9.5 Switching from DDB to SLN with VDB.

9.6 Modified Accelerated Cost Recovery System (MACRS).

9.7 Comparison of Depreciation Methods.

9.8 Summary.

Appendix 9.A Sum-of-Years-Digits Depreciation.

Appendix 9.B Other Depreciation Methods.

9.B.1 Unit of Production Method.

9.B.2 Operating Day (Hour) Method.

9.B.3 Income Forecast Method.

Appendix 9.C Depletion.

10. After-Tax Economic Analysis.

10.1 Introduction.

10.2 Tax Concepts.

10.3 Corporate Income Taxes.

10.4 After-Tax Cash Flow without Borrowing.

10.5 After-Tax Comparison of Alternatives.

10.6 After-Tax Cash Flows with Borrowing.

10.7 How Much Money Should a Company Borrow?

10.9 Timing of Investment versus First Year's Depreciation Charge.

10.10 International Considerations.

10.11 Summary.

11. Replacement Analysis.

11.1 Introduction.

11.2 Cash Flow Approach.

11.3 Opportunity Cost Approach.

11.4 Section 1031 Exchanges.

11.5 Optimum Replacement Interval.

11.6 Summary.

12. Inflation Effects.

12.1 Introduction.

12.2 Using Indexes to Measure Inflation.

12.3 Before-Tax Analysis in Inflationary Conditions.

12.4 After-Tax Analysis in Inflationary Conditions.

12.5 After-Tax Analysis with Inflation and Borrowed Capital.

12.6 Summary.

13. Supplementary Analysis.

13.1 Introduction.

13.2 Breakeven Analysis.

13.3 Sensitivity Analysis.

13.4 Risk Analysis.

13.5 Summary.

Appendix 13.A Decision Tree Analysis.

14. Economic Analysis In The Public And Regulated Sectors.

14.1 Introduction - The Nature of Public Projects.

14.2 Build-Operate-Transfer.

14.3 Objectives in Public Project Evaluation.

14.4 Guidelines in Public Sector Evaluation.

14.5 U.S. Federal Government Guidelines.

14.6 Using SEAT in Public Sector Evaluations.

14.7 Benefit-Cost and Cost-Effectiveness Calculations.

14.8 Important Considerations in Evaluating Public Projects.

14.9 Introduction - The Revenue Requirements Method.

14.10 Definition of Terms.

14.11 Determining the Minimum Revenue Requirement.

14.12 Showing Equivalence between Revenue Requirement and ATCF Methods.

14.13 Summary.

15. Capital Budgeting.

15.1 Introduction.

15.2 The Classical Capital Budgeting Problem.

15.3 Unequal Investment Durations.

15.4 Capital Budgeting with Divisible Investments.

15.5 Using Excel to Solve the Capital Budgeting Problem with Divisible Investments.

15.6 Practical Considerations in Capital Budgeting.

15.7 Summary.

16. Obtaining And Estimating Cash Flows.

16.1 Introduction.

16.2 Cost Terminology.

16.3 Cost Estimation.

16.4 General Accounting Principles.

16.5 Cost Accounting Principles.

16.6 Summary.

Appendixes.

A. Discrete Compound Interest Tables.

a. Single-Sum, Uniform Series, and Gradient Series Interest Factors.

b. Geometric Series Present Worth Interest Factors.

c. Geometric Series Future Worth Interest Factors.

B. Continuous Compound Interest Tables.

a. Single-Sum, Uniform Series, and Gradient Series Interest Factors.

b. Continuous Flow Interest Factors.

Index.

New To This Edition
The 2011 Update and Student Study Edition provides students and instructors the latest tax information, and up-to-date company and industry information in the chapter opening stories (such as the BP Gulf oil spill), reflecting changes resulting from the recent tumult in the economy, so that students can work with the most current and relevant information.

The 2011 Update and Student Study Edition also highlights opportunities for instructors and students to benefit from the teaching and learning resources available in the WileyPLUS course (instructors may choose to adopt this text with WileyPLUS), including:

• Algorithmic homework problems that provide: instant feedback to students, link-to-text where students may review if they're having trouble, and Tutorial and Video Solution help. All Tutorial help is available at the instructor's discretion.
• Worked Problem Videos, demonstrating how to solve problems, both algebraically and with Excel.

Icons in the 2011 Update and Student Study Edition identify:

• 25 Video Lessons for key topics, available in WileyPLUS
• o Algorithmic problems
• o GO Tutorial problems
• o 96 Problems with Video Solutions
Hallmark Features
FOCUS ON BUILDING PROBLEM SOLVING SKILLS
• 280 worked examples help students to model good problem solving technique.
• Presents and consistently reinforces a systematic analysis technique for engineering economic analysis (SEAT). The frequent reference to this technique throughout the text enables students to view analysis techniques in terms of the "big picture."
• Over 950 end-of-chapter problems, including over 180 Fundamentals of Engineering (FE)-type questions that help students prepare for the FE Exam.
• Problems in the WileyPLUS course are categorized at three levels of difficulty (simple, intermediate, and difficult).
• Introduces "Ten Principles of Engineering Economic Analysis" in Chapter 1 (p.6) and uses them as a touchstone throughout the book. For example, Principle Eight, "Compare investment alternatives over a common period of time" is revisited Choosing Planning Horizons (p.195), Present Worth Analysis (p.240), Future Worth, Unequal Lives (p. 292), and Capital Recovery Cost (p.328).
• Appropriate attention is given to external sources available on the Web, including loan, mortgage retirement calculators, corp. financial statements, depreciation and tax documents, public, and more.

COMPREHENSIVE BUT FLEXIBLE TOPICAL COVERAGE

• Coverage is comprehensive and flexible and includes all standard topics plus stronger coverage of more advanced analysis techniques than most of the competitors (e.g., risk analysis, sensitivity analysis, cost estimating, public sector economics, capital budgeting, etc.)  See p. xi in the Preface for course coverage options.

LOTS OF REAL-WORLD & REALISTIC EXAMPLES

• Motivational chapter introductions feature examples that range from well-known companies like Caterpillar, Starbucks, Intel, Conoco Phillips, Motorola, Walmart, and Abbott Labs, to small businesses and public-sector projects like the Seattle Green Line Project.
• Includes a mix of business /industry and personal finance examples and homework problems. Example, "Justifying an Engineering Degree," p. 154.

PEDAGOGY THAT REINFORCES LEARNING

• Key material is separated into color-shaded boxes for emphasis and study.
• A set of true/false questions called "Pit Stops" is included after the text presentation and prior to the homework problems in each chapter, testing understanding of concepts.
• Spreadsheet examples are abundant and displayed as actual screen shots, making it easier to follow along.

WILEYPLUS

• WileyPLUS provides unique value to support problem solving skills/comprehension.
• Includes GO Problems, GO Tutorials, and Video problem solving clips.

## Available Versions

Principles of Engineering Economic Analysis, 5th Edition
by John A. White, Kenneth E. Case, David B. Pratt
ISBN 978-0-470-11396-7