## Table of contents for Engineering economy / Leland Blank.

Bibliographic record and links to related information available from the Library of Congress catalog.

Note: Contents data are machine generated based on pre-publication provided by the publisher. Contents may have variations from the printed book or be incomplete or contain other coding.

```CONTENTS
Preface xiii
THIS IS HOW IT ALL STARTS
Chapter 1	Foundations of Engineering Economy	4
1.1	Why Engineering Economy Is Important to Engineers (and Other
Professionals)	6
1.2	Role of Engineering Economy in Decision Making	7
1.3	Performing an Engineering Economy Study	9
1.4	Interest Rate and Rate of Return	12
1.5	Equivalence	15
1.6	Simple and Compound Interest	17
1.7	Terminology and Symbols	23
1.8	Introduction to Solution by Computer	26
1.9	Minimum Attractive Rate of Return	28
1.10	Cash Flows: Their Estimation and Diagramming	30
1.11	Rule of 72: Estimating Doubling Time and Interest Rate	35
1.12	Spreadsheet Application-Simple and Compound Interest, and Changing Cash
Flow Estimates	36
Chapter Summary	41
Problems	42
FE Review Problems	45
Extended Exercise-Effects of Compound Interest	45
Case Study-Describing Alternatives for Producing Refrigerator Shells	46
Chapter 2	Factors: How Time and Interest Affect Money	48
2.1	Single-Payment Factors (FyP and PyF)	50
2.2	Uniform-Series Present Worth Factor and Capital RecoveryFactor (PyA and
AyP)	56
2.3	Sinking Fund Factor and Uniform-Series Compound AmountFactor (AyF and FyA)
60
2.4	Interpolation in Interest Tables	63
2.5	Arithmetic Gradient Factors (PyG and AyG)	65
2.6	Geometric Gradient Series Factors	71
2.7	Determination of an Unknown Interest Rate	74
2.8	Determination of Unknown Number of Years	77
2.9	Spreadsheet Application-Basic Sensitivity Analysis	78
Chapter Summary	81
Problems	81
FE Review Problems	87
Case Study-What a Difference the Years and Compound Interest Can Make	88
Chapter 3	Combining Factors	90
3.1	Calculations for Uniform Series That Are Shifted	92
3.2	Calculations Involving Uniform-Series and Randomly Placed Single Amounts
96
3.3	Calculations for Shifted Gradients	101
3.4	Shifted Decreasing Arithmetic Gradients	106
3.5	Spreadsheet Application-Using Different Functions	108
Chapter Summary	113
Problems	113
FE Review Problems	119
Extended Exercise-Preserving Land for Public Use	120
Chapter 4	Nominal and Effective Interest Rates	122
4.1	Nominal and Effective Interest Rate Statements	124
4.2	Effective Annual Interest Rates	128
4.3	Effective Interest Rates for Any Time Period	134
4.4	Equivalence Relations: Comparing Payment Period and Compounding
Period Lengths (PP versus CP)	136
4.5	Equivalence Relations: Single Amounts with PP \$ CP	137
4.6	Equivalence Relations: Series with PP \$ CP	140
4.7	Equivalence Relations: Single Amounts and Series with PP , CP	145
4.8	Effective Interest Rate for Continuous Compounding	147
4.9	Interest Rates That Vary over Time	149
Chapter Summary	151
Problems	152
FE Review Problems	155
Case Study-Financing a House	156
TOOLS FOR EVALUATING ALTERNATIVES
Chapter 5	Present Worth Analysis	162
5.1	Formulating Mutually Exclusive Alternatives	164
5.2	Present Worth Analysis of Equal-Life Alternatives	166
5.3	Present Worth Analysis of Different-Life Alternatives	168
5.4	Future Worth Analysis	171
5.5	Capitalized Cost Calculation and Analysis	173
5.6	Payback Period Analysis	179
5.7	Life-Cycle Cost	184
5.8	Present Worth of Bonds	188
5.9	Spreadsheet Applications-PW Analysis and Payback Period	191
Chapter Summary	196
Problems	196
FE Review Problems	203
Extended Exercise-Evaluation of Social Security Retirement Estimates	204
Case Study-Payback Evaluation of Ultralow-Flush Toilet Program	205
Chapter 6	Annual Worth Analysis	208
6.1	Advantages and Uses of Annual Worth Analysis	210
6.2	Calculation of Capital Recovery and AW Values	212
6.3	Evaluating Alternatives by Annual Worth Analysis	215
6.4	AW of a Permanent Investment	220
Chapter Summary	223
Problems	224
FE Review Problems	227
Case Study-The Changing Scene of an Annual Worth Analysis	228
Chapter 7	Rate of Return Analysis: Single Alternative	230
7.1	Interpretation of a Rate of Return Value	232
7.2	Rate of Return Calculation Using a PW or AW Equation	234
7.3	Cautions When Using the ROR Method	240
7.4	Multiple Rate of Return Values	241
7.5	Composite Rate of Return: Removing Multiple i* Values	247
7.6	Rate of Return of a Bond Investment	253
Chapter Summary	255
Problems	256
FE Review Problems	261
Extended Exercise 1-The Cost of a Poor Credit Rating	262
Extended Exercise 2-When Is It Best to Sell a Business?	263
Case Study-Bob Learns About Multiple Rates of Return	264
Chapter 8	Rate of Return Analysis: Multiple Alternatives	266
8.1	Why Incremental Analysis is Necessary	268
8.2	Calculation of Incremental Cash Flows for ROR Analysis	269
8.3	Interpretation of Rate of Return on the Extra Investment	272
8.4	Rate of Return Evaluation Using PW: Incremental and Breakeven	273
8.5	Rate of Return Evaluation Using AW	281
8.6	Incremental ROR Analysis of Multiple, Mutually Exclusive Alternatives
282
8.7	Spreadsheet Application-PW, AW, and ROR Analyses All in One	287
Chapter Summary	290
Problems	290
FE Review Problems	296
Extended Exercise-Incremental ROR Analysis When Estimated Alternative
Lives are Uncertain	297
Case Study 1-So Many Options. Can a New Engineering Graduate Help His
Father?	298
Case Study 2-PW Analysis When Multiple Interest Rates Are Present	300
Chapter 9	Benefit/Cost Analysis and Public Sector Economics	302
9.1	Public Sector Projects	304
9.2	Benefit/Cost Analysis of a Single Project	308
9.3	Alternative Selection Using Incremental B/C Analysis	313
9.4	Incremental B/C Analysis of Multiple, Mutually Exclusive Alternatives
316
Chapter Summary	322
Problems	322
FE Review Problems	328
Extended Exercise-Costs to Provide Ladder Truck Service for Fire Protection
328
Case Study-Freeway Lighting	330
Chapter 10	Making Choices: The Method, MARR, and Multiple Attributes
332
10.1	Comparing Mutually Exclusive Alternatives by Different Evaluation Methods
334
10.2	MARR Relative to the Cost of Capital	337
10.3	Debt-Equity Mix and Weighted Average Cost of Capital	340
10.4	Determination of the Cost of Debt Capital	343
10.5	Determination of the Cost of Equity Capital and the MARR	345
10.6	Effect of Debt-Equity Mix on Investment Risk	348
10.7	Multiple Attribute Analysis: Identification and Importance of Each
Attribute 	350
10.8	Evaluation Measure for Multiple Attributes	355
Chapter Summary	357
Problems	358
Extended Exercise-Emphasizing the Right Things	365
Case Study-Which Way to Go-Debt or Equity Financing?	367
MAKING DECISIONS ON REAL-WORLD PROJECTS
Chapter 11	Replacement and Retention Decisions	370
11.1	Basics of the Replacement Study	372
11.2	Economic Service Life	375
11.3	Performing a Replacement Study	381
11.4	Additional Considerations in a Replacement Study	387
11.5	Replacement Study over a Specified Study Period	388
Chapter Summary	394
Problems	394
FE Review Problems	399
Extended Exercise-Economic Service Life Under Varying Conditions	400
Case Study-Replacement Analysis for Quarry Equipment	401
Chapter 12	Selection from Independent Projects Under Budget Limitation
402
12.1	An Overview of Capital Rationing Among Projects	404
12.2	Capital Rationing Using PW Analysis of Equal-Life Projects	406
12.3	Capital Rationing Using PW Analysis of Unequal-Life Projects	408
12.4	Capital Budgeting Problem Formulation Using Linear Programming	412
Chapter Summary	416
Problems	417
Case Study-Lifelong Engineering Education in a Web Environment	420
Chapter 13	Breakeven Analysis	422
13.1	Breakeven Analysis for a Single Project	424
13.2	Breakeven Analysis Between Two Alternatives	431
13.3	Spreadsheet Application-Using Excel's SOLVER for Breakeven Analysis
435
Chapter Summary	438
Problems	439
Case Study-Water Treatment Plant Process Costs	444
ROUNDING OUT THE STUDY
Chapter 14	Effects of Inflation	450
14.1	Understanding the Impact of Inflation	452
14.2	Present Worth Calculations Adjusted for Inflation	453
14.3	Future Worth Calculations Adjusted for Inflation	459
14.4	Capital Recovery Calculations Adjusted for Inflation	464
Chapter Summary	465
Problems	466
FE Review Problems	469
Extended Exercise-Fixed-Income Investments versus the Forces of Inflation
470
Chapter 15	Cost Estimation and Indirect Cost Allocation	472
15.1	Understanding How Cost Estimation Is Accomplished	474
15.2	Cost Indexes	477
15.3	Cost Estimating Relationships: Cost-Capacity Equations	481
15.4	Cost Estimating Relationships: Factor Method	482
15.5	Traditional Indirect Cost Rates and Allocation	485
15.6	Activity-Based Costing (ABC) for Indirect Costs	490
Chapter Summary	493
Problems	494
FE Review Problems	501
Case Study-Total Cost Estimates for Optimizing Coagulant Dosage	501
Case Study-Indirect Cost Comparison of Medical Equipment Sterilization Unit
504
Chapter 16	Depreciation Methods	506
16.1	Depreciation Terminology	508
16.2	Straight Line (SL) Depreciation	511
16.3	Declining Balance (DB) and Double Declining Balance (DDB) Depreciation
512
16.4	Modified Accelerated Cost Recovery System (MACRS)	517
16.5	Determining the MACRS Recovery Period	521
16.6	Depletion Methods	522
Chapter Summary	524
Problems	526
FE Review Problems	529
16A.1	Sum-of-Year Digits (SYD) Depreciation	530
16A.2	Switching Between Depreciation Methods	532
16A.3	Determination of MACRS Rates	537
Appendix Problems	540
Chapter 17	After-Tax Economic Analysis	542
17.1	Income Tax Terminology and Relations for Corporations (and Individuals)
544
17.2	Before-Tax and After-Tax Cash Flow	548
17.3	Effect on Taxes of Different Depreciation Methods and Recovery Periods
552
17.4	Depreciation Recapture and Capital Gains (Losses): for Corporations
555
17.5	After-Tax PW, AW, and ROR Evaluation	560
17.6	Spreadsheet Applications-After-Tax Incremental ROR Analysis	566
17.7	After-Tax Replacement Study	569
17.8	After-Tax Value-Added Analysis	573
Chapter Summary	577
Problems	578
Case Study-After-Tax Evaluation of Debt and Equity Financing	587
Chapter 18	Formalized Sensitivity Analysis and Expected Value Decisions
590
18.1	Determining Sensitivity to Parameter Variation	592
18.2	Formalized Sensitivity Analysis Using Three Estimates	599
18.3	Economic Variability and the Expected Value	602
18.4	Expected Value Computations for Alternatives	603
18.5	Staged Evaluation of Alternatives Using a Decision Tree	605
Chapter Summary	610
Problems	611
Extended Exercise-Looking at Alternatives from Different Angles	619
Case Study-Sensitivity Analysis of Public Sector Projects-Water Supply
Plans	619
Chapter 19	More on Variation and Decision Making Under Risk	624
19.1	Interpretation of Certainty, Risk, and Uncertainty	626
19.2	Elements Important to Decision Making Under Risk	630
19.3	Random Samples	636
19.4	Expected Value and Standard Deviation	641
19.5	Monte Carlo Sampling and Simulation Analysis 	647
Chapter Summary	661
Problems	661
Extended Exercise-Using Simulation and the Excel RNG for Sensitivity
Analysis	666
Appendix A	Using Spreadsheets and Microsoft Excel c	667
A.1	Introduction to Using Excel	667
A.2	Organization (Layout) of the Spreadsheet	671
A.3	Excel Functions Important to Engineering Economy (alphabetical order)
673
A.4	SOLVER-An Excel Tool for Breakeven and "What If?" Analysis	682
A.5	List of Excel Financial Functions	683
A.6	Error Messages	685
Appendix B	Basics of Accounting Reports and Business Ratios	686
B.1	The Balance Sheet	686
B.2	Income Statement and Cost of Goods Sold Statement	688
B.3	Business Ratios	689
Problems	693
Appendix C	Final Answers to Selected End-of-Chapter Problems	695
Bibliography	700
Compound Interest
Factor Tables	702
INDEX	731
```

Library of Congress Subject Headings for this publication:

Engineering economy.