ENCE 307 · Micro Syllabus · Year III / Part I
Engineering Economics
Engineering Economics Micro Syllabus – ENCE 307
The Engineering Economics micro syllabus (ENCE 307) is a core subject for third-year civil engineering students at the Institute of Engineering (IOE), Tribhuvan University. This page provides the complete, unit-wise Engineering Economics ENCE 307 micro syllabus including teaching schedules, depth codes, topic descriptions, and model questions.
Engineering Economics equips civil engineering students with the economic analysis tools needed to make sound engineering decisions. The course bridges fundamental economic theory and practical engineering applications — covering everything from market behavior, cost classification, and time value of money to project comparison methods, replacement analysis, risk evaluation, depreciation, and macroeconomic indicators.
The Engineering Economics ENCE 307 micro syllabus spans nine units across 45 lecture hours. Students learn to apply methods such as Net Present Worth (NPW), Internal Rate of Return (IRR), Benefit-Cost Analysis, Economic Service Life (ESL), and depreciation models (Straight-Line, SOYD, MACRS). The course also introduces macroeconomic concepts including GDP measurement, inflation equivalence calculations, and fiscal policy — making it one of the most broadly applicable subjects in the IOE civil engineering curriculum.
Teaching Schedule & Examination Scheme
Lecture · Tutorial · Practical Hours
| L (Lecture) | T (Tutorial) | P (Practical) | Total Lecture Hours |
|---|---|---|---|
| 3 | 1 | 0 | 45 |
Depth Codes
Legend – Teaching Depth Indicators
D Definition
E Explanation
NUM Numerical
DV Derivation
DW Drawing
PS Problem Solving
I Illustration
S State
Engineering Economics – Unit-wise Micro Syllabus
1
Introduction to Engineering Economics
2L · 1T · 0P · Week 1| Topic / Sub-topic | Description | Depth Code | Hours (L:T:P) |
|---|---|---|---|
| 1.1 Micro, Macro and Engineering Economics | History, fundamental principles, and application of micro, macro, and engineering economics in civil engineering decision-making. | D, E | 2:1:0 |
| 1.2 Terminology and Decision Making | Economic terminology used in engineering; the role of engineers in economic decision-making processes. | D, E | — |
| 1.3 Cash Flow and Cash Flow Diagram (CFD) | Concept of cash flow; construction and interpretation of Cash Flow Diagrams (CFD) for engineering projects. | D, DW, PS | — |
2
Market Economics
3L · 1T · 0P · Weeks 1–2| Topic / Sub-topic | Description | Depth Code | Hours (L:T:P) |
|---|---|---|---|
| 2.1 Market, Demand, Supply, and Relationship | Relationship between demand and supply; market equilibrium; factors shifting demand and supply curves. | D, E, I | 3:1:0 |
| 2.2 Elasticity and Government Policies | Application of price elasticity of demand and supply; government policies such as price ceilings and price floors and their effects on market equilibrium. | NUM, PS | — |
| 2.3 Market Failures and Firm Behavior | Externalities; market inefficiency; types of market failure; firm behavior under different market structures. | E, D | — |
3
Cost
2L · 1T · 0P · Week 2| Topic / Sub-topic | Description | Depth Code | Hours (L:T:P) |
|---|---|---|---|
| 3.1 Cost Classification | Total, average, fixed, variable, marginal, direct, indirect, standard, sunk, opportunity, and life-cycle costs — definitions and engineering applications. | D, E | 2:1:0 |
| 3.2 Cost Estimation and Control | Cost estimation techniques (order-of-magnitude, preliminary, detailed). Cost control methods for engineering projects. | E, NUM | — |
4
Time Value of Money
6L · 1T · 0P · Weeks 3–4| Topic / Sub-topic | Description | Depth Code | Hours (L:T:P) |
|---|---|---|---|
| 4.1 Money and Interest | Functions of money; time value of money concept; simple interest vs compound interest calculations. | D, NUM | 6:1:0 |
| 4.2 Compounding | Nominal interest rate, effective interest rate, and continuous compounding — definitions, relationships, and numerical calculations. | NUM, PS | — |
| 4.3 Equivalence and Cash Flows | Economic equivalence; analysis and derivation of factors for single payment, uniform series (annuity), arithmetic gradient (linear), geometric gradient, and irregular cash flows. | NUM, DV | — |
5
Methods of Economic Analysis
12L · 2T · 0P · Weeks 5–8| Topic / Sub-topic | Description | Depth Code | Hours (L:T:P) |
|---|---|---|---|
| 5.1 Capital Budgeting and MARR | Concept of capital budgeting; Minimum Attractive Rate of Return (MARR) — definition, significance, and determination. | D, E | 12:2:0 |
| 5.2 Equivalent Worth Methods | Application and comparison of Net Present Worth (NPW), Annual Equivalent Worth (AEW), Future Worth (FW), and Capitalized Worth (CW) methods. Numerical problems. | NUM, PS | — |
| 5.3 Rate of Return | Calculation of Internal Rate of Return (IRR) using trial and error/interpolation; External Rate of Return (ERR) method and its advantages over IRR. Numerical problems. | NUM, PS | — |
| 5.4 Public Sector and WACC | Benefit-Cost (B/C) ratio analysis for public sector projects; Weighted Average Cost of Capital (WACC) — definition and calculation. | D, NUM, PS | — |
| 5.5 Project Comparisons | Analysis of independent, dependent, and contingent projects; repeatability assumption; incremental analysis for mutually exclusive alternatives. | E, PS | — |
6
Replacement Analysis
5L · 1T · 0P · Weeks 9–10| Topic / Sub-topic | Description | Depth Code | Hours (L:T:P) |
|---|---|---|---|
| 6.1 Replacement Strategies | Concept of defender (existing asset) vs challenger (new asset); reasons for replacement; economic and functional obsolescence. | D, E | 5:1:0 |
| 6.2 Economic Service Life (ESL) | Definition and calculation of Economic Service Life (ESL) — the life that minimizes the total equivalent annual cost of an asset. Numerical problems. | NUM, PS | — |
| 6.3 Horizon Analysis | Replacement strategies for finite planning horizons (fixed study period) and infinite planning horizons; practical application in engineering asset management. | E, PS | — |
7
Risk Analysis
5L · 1T · 0P · Weeks 10–11| Topic / Sub-topic | Description | Depth Code | Hours (L:T:P) |
|---|---|---|---|
| 7.1 Risk Analysis Techniques | Sensitivity analysis (effect of changing one variable at a time); breakeven analysis (finding the value at which alternatives are equal); scenario analysis (best-case, worst-case, most-likely case). Numerical applications. | NUM, PS | 5:1:0 |
| 7.2 Decision Tree | Construction and analysis of decision trees for decision-making under risk and uncertainty; expected monetary value (EMV) calculations. | DW, PS | — |
8
Depreciation and Taxes
5L · 1T · 0P · Weeks 12–13| Topic / Sub-topic | Description | Depth Code | Hours (L:T:P) |
|---|---|---|---|
| 8.1 Depreciation Methods | Straight-Line (SL) method; Declining Balance (DB) method; Sum-of-Years’ Digits (SOYD) method; Modified Accelerated Cost Recovery System (MACRS) — definitions, formulas, and numerical computations of annual depreciation and book value. | D, NUM | 5:1:0 |
| 8.2 Taxes and After-Tax Analysis | Corporate income tax structure; calculation of After-Tax Cash Flow (ATCF); role of depreciation as a tax shield; after-tax economic analysis of engineering projects. | NUM, PS | — |
9
Measurement of National Income
5L · 1T · 0P · Weeks 14–15| Topic / Sub-topic | Description | Depth Code | Hours (L:T:P) |
|---|---|---|---|
| 9.1 GDP and Unemployment | Real vs nominal Gross Domestic Product (GDP); methods of measuring GDP (expenditure, income, production); types and measurement of unemployment. | D, E | 5:1:0 |
| 9.2 Inflation | Causes and effects of inflation; Consumer Price Index (CPI); relationship between real and nominal interest rates; equivalence calculations adjusted for inflation. | E, NUM | — |
| 9.3 Exchange Rate and Fiscal Policy | Real vs nominal exchange rates; fiscal budget (government expenditure and taxation); monetary policy tools and their macroeconomic effects. | E, S | — |
References
Recommended Books – Engineering Economics ENCE 307
- 1 Park, C. S. (2016). Contemporary Engineering Economics (6th ed.). Pearson Education.
- 2 Blank, L., Tarquin, A. (2017). Engineering Economy (8th ed.). McGraw-Hill Education.
- 3 Sullivan, W. G., Wicks, E. M., Koelling, C. P. (2014). Engineering Economy (16th ed.). Pearson Education.
- 4 Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
Model Question Paper – ENCE 307
Subject: Engineering Economics | Code: ENCE 307 | Year/Part: III/I | Note: Questions and marks are indicative only.
| Q.N. | Question | Marks | Unit |
|---|---|---|---|
| 1 | Explain the concept of Economic Equivalence and Time Value of Money (TVM). Derive the formula for the Present Worth (P) of a Uniform Series (A) for n periods at an interest rate i. | 10 | 4 |
| 2 | What is Depreciation? Explain the difference between book value and market value. A heavy machine costing Rs. 50,00,000 has a useful life of 8 years and a salvage value of Rs. 2,00,000. Calculate the depreciation charge and the book value for the 4th year using both the Straight-Line Method and the Sum-of-Years’-Digits (SOYD) Method. | 10 | 8 |
| 3 | Discuss the various types of cost classification used in engineering project evaluation. Explain the significance of Sunk Cost and Opportunity Cost in decision-making. Illustrate the process of After-Tax Cash Flow (ATCF) calculation for a project, clearly indicating how depreciation expense serves as a tax shield. | 10 | 3, 8 |
| 4 | Define elasticity of demand and explain its practical application in setting prices for a public utility service (e.g., electricity or water supply). Discuss the impact of government policies like price ceilings on market equilibrium. | 5 | 2 |
| 5 | Distinguish between Internal Rate of Return (IRR) and External Rate of Return (ERR). Why is ERR sometimes considered a more reliable measure than IRR for project selection? | 5 | 5 |
| 6 | A company is considering two mutually exclusive projects, A and B, both having a life of 5 years. Given a MARR of 10%, use the Net Present Worth (NPW) Method to select the better project. Project A: Initial Cost = Rs. 10,00,000 | Annual Benefit = Rs. 3,50,000 Project B: Initial Cost = Rs. 8,00,000 | Annual Benefit = Rs. 3,00,000 |
5 | 5 |
| 7 | Explain the concept of Capitalized Cost (CW). A dam requires an initial investment of Rs. 5 Crore and major maintenance of Rs. 50 Lakh every 10 years. If the interest rate is 8%, calculate the capitalized cost of the dam. | 5 | 5 |
| 8 | Discuss the major causes and effects of inflation on an economy. How are real and nominal interest rates related in an inflationary environment? Provide an example of how inflation affects equivalence calculations. | 5 | 9 |
| 9 | What are the steps involved in a Replacement Analysis? Determine the Economic Service Life (ESL) for an asset with the following costs at an 8% interest rate: Initial Cost = Rs. 10,00,000 Annual Operating Cost: Year 1 – Rs. 50,000 | Year 2 – Rs. 60,000 | Year 3 – Rs. 75,000 |
5 | 6 |
| 10 | Explain Sensitivity Analysis and Breakeven Analysis as tools for risk evaluation in engineering projects. How does a Decision Tree help a decision-maker under conditions of risk and uncertainty? | 5 | 7 |
| 11 | Differentiate between Microeconomics and Macroeconomics. Briefly explain the components used in the calculation of Gross Domestic Product (GDP). | 5 | 1, 9 |
| 12 | Distinguish between Weighted Average Cost of Capital (WACC) and Minimum Attractive Rate of Return (MARR). Under what circumstances would a project be considered acceptable based on the B/C Ratio method? | — | 5 |
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