ENGINEERING ECONOMICS (ENCE 307)

1. Introduction (2 hours)

1.1 Micro, macro, and engineering economics (History, fundamental principles, and applications)

1.2 Terminology related to engineering economics

1.3 Economic decisions and the role of engineers in decision-making

1.4 Cash flow and cash flow diagrams

2. Market Economics (3 hours)

2.1 Market, demand, supply, and their relationships

2.2 Elasticity, application of elasticity, and government policies

2.3 Externality and market inefficiency

2.4 Market failure and firm behavior

3. Cost (2 hours)

3.1 Cost classification

3.1.1 Total, average, fixed, variable, and marginal costs

3.1.2 Direct, indirect, and standard costs

3.1.3 Cash versus book cost, manufacturing and non-manufacturing cost

3.1.4 Sunk cost, opportunity cost, elements of cost, life-cycle cost

3.2 Cost estimation and control

4. Time Value of Money (6 hours)

4.1 Money (Types, functions, and time value of money)

4.2 Simple and compound interest (Nominal, effective, and continuous compounding)

4.3 Economic equivalence

4.4 Cash flow types (Single, uniform, linear gradient, geometric gradient, and irregular)

5. Methods of Economic Analysis (12 hours)

5.1 Capital budgeting

5.2 Minimum Attractive Rate of Return (MARR)

5.3 Economic analysis of single and multiple projects

5.3.1 Payback period (Simple and discounted)

5.3.2 Equivalent worth (Net present, annual, future, and capitalized)

5.3.3 Rate of return (Internal and external)

5.3.4 Public Sector economic analysis (Benefit-cost analysis)

5.3.5 Financial and economic analysis

5.4 Weighted Average Cost of Capital (WACC)

5.5 Repeatability assumption and co-terminated assumptions

5.6 Multiple investment project alternatives (Dependent, independent, and contingent)

6. Replacement Analysis (5 hours)

6.1 Replacement strategies (Asset life and selection of challengers over defenders)

6.2 Economic service life of an asset

6.3 Replacement strategy for assets (Projects with finite and infinite planning horizons)

7. Risk Analysis (5 hours)

7.1 Origin of risk in projects

7.2 Risk analysis of projects (Sensitivity, breakeven, and scenario analyses)

7.3 Decision tree

8. Depreciation and Taxes (5 hours)

8.1 Concept and terminology

8.2 Depreciation calculation (Straight line, declining balance, sinking fund, sum of the years’ digits, and modified accelerated cost recovery methods)

8.3 Tax and corporate income tax

8.4 Economic analysis (After-tax cash flow)

9. Measurement of National Income (5 hours)

9.1 Gross Domestic Product (Components, real and nominal Gross Domestic Product)

9.2 Unemployment (Measurement, job search, minimum wage law)

9.3 Inflation

9.3.1 Causes, effects, and measurement of inflation

9.3.2 Constant and current cash flow

9.3.3 Equivalence calculation under inflation

9.3.4 Inflation controlling measures

9.4 Real and nominal exchange rates, fiscal budget, and monetary policy

9.5 Financial statement

Cash flow diagram construction; apply and analyze it for different projects.

Problems related to market equilibrium, elasticity, and government policies.

Exercises on calculating interest and analyzing cash flows with economic equivalence.

Application of capital budgeting techniques for given cash flows.

Selection of best replacement strategies and applying risk analysis for real cases.

Computation of after-tax cash flow for economic analysis.

Calculation and analysis of Gross Domestic Product, performing equivalence calculations under different inflation scenarios, and analyzing real and nominal exchange rates.

Calculation of price variation and price escalation.

Summarize the fiscal budget.

1. Mankiw, N. G. (2017). Principles of Economics (8th ed.). Cengage Learning.

2. Park, C.S. (2016). Contemporary Engineering Economics. Prentice Hall, Inc.

3. McConnell, C. R., Brue, S. L., & Flynn, S. M. (2020). Economics: Principles, Problems, and Policies (22nd ed.). McGraw-Hill Education.