Understand Fundamentals of Engineering Economics that Enable Students to Perform Economic Analysis of Different Projects
Engineering economics, previously known as engineering economy, is a subset of economics concerned with the use and “application of economic principles” in the analysis of engineering decisions. As a discipline, it is focused on the branch of economics known as microeconomics in that it studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources. Thus, it focuses on the decision-making process, its context and the environment
As a discipline though, it is closely related to others such as statistics, mathematics, and cost accounting. It draws upon the logical framework of economics but adds to that the analytical power of mathematics and statistics
Engineers seek solutions to problems, and along with the technical aspects, the economic viability of each potential solution is normally considered from a specific viewpoint that reflects its economic utility to a constituency. Fundamentally, engineering economics involves formulating, estimating, and evaluating the economic outcomes when alternatives to accomplish a defined purpose are available.
Since engineering is an important part of the manufacturing sector of the economy, engineering industrial economics is an important part of industrial or business economics. For this reason, the major courses that are covered in this course are:
The economics of the management, operation, and growth and profitability of engineering firms;
Macro-level engineering economic trends and issues;
Engineering product markets and demand influences; and
The development, marketing, and financing of new engineering technologies and products.
This Course Includes the following topics.
Introduction: Engineering economy defined, measures of financial effectiveness, non-monetary factors and multiple objectives. Principles of engineering economy.
The Economic Environment: Consumer and producer goods, measures of economic worth. price, supply, & demand relationship. production. factors of production laws of return.
Cost Concepts & Analysis: Sunk & opportunity costs. fixed, variable, and incremental costs, recurring & nonrecurring costs. direct, indirect. and overhead costs, standard costs. Break-even analysis, unit cost of production, cost-benefit analysis, feasibility studies, value analysis in designing & purchasing.
Time Value of Money: Simple interest, compound interest, cash flow diagrams, interest formulas, nominal versus effective interest rate, continuous compounding.
Depreciation and Depletion: Purpose of depreciation, types of depreciation, economic life and what can be depreciated?
Comparing Alternatives: Present economy, selection among machines, materials, processes, and designs, payback period method, present worth method, uniform annual cost method, rate of return method, alternatives having identical lives, alternatives having different lives.
Linear Programming: Mathematical statement of linear programming problems graphic solution. Simplex method and duality problems.
RECOMMENDED BOOKS
(01) Engineering Economics by William G. Sullivan & James A. Bontadelli
(02) Operational Research: An Introduction by Hamdy A Taha
COURSE OUTLINE OF THIS COURSE IN DETAIL
Introduction of Economics
Introduction to Economics and Difference between Wants and Desires
Introduction to Economics
Difference between Want and Desires
Do resources fulfill wants or desires?
Macro and Micro Economics, Engineering Economics and Economic Behavior
Two Dimensions of Economics
Macro Economics
Micro Economics
Engineering Economics
Economic Environment/Behaviour
Classification of Consumer and Producer Goods
Theory and Laws of Demand and Supply
Theory of Demand and Supply
Law of Supply
Determination of Supply
Shifts in Supply
Law of Demand
Demand Schedule or Demand Curve
Determination of Demand
Shifts in Demand
Supply Function/Equation
Demand Function/Equation
Understanding the Market Equilibrium and Elasticity concepts in Economics
Market Equilibrium
Equilibrium’s Mathematical Representation
Price Elasticity of Demand
Elasticity and Revenue
Special Cases of Elasticity
Market Structure and Types of Businesses
Market Structure
Types of Businesses
Understanding the Time Value of Money
Understand Simple and Compound Interest with Problems and Cash Flow Diagramming
Simple Interest
Compound Interest
Simple vs. Compound Interest
Notation and Cash Flows Diagram
Cash Flow Diagraming
Present and Future Values of Single Cash Flow
Discrete Cash Flow Examples Illustrating Equivalence
Present Equivalent of Future Amount of Money
Solving Problem related to Time Value of Money
Annuity and Deferred Annuity and Solving Example Problems related to them
Annuity
Relating a Uniform Series (Annuity) to its Present and Future Equivalence
Present Equivalent of Annuity
Solving Problems Related to the Annuity
Deferred Annuities (Uniform Series)
Present Equivalent of Deferred Annuity
Solving Problems related to Present Equivalent of Deferred Annuity
Uniform Arithmetic Gradient of Cash Flow
Gradient Problem and using Gradient Conversion for Solving Problems
Gradient Problem
Using Gradient Conversion Factor for solving Problems
Nominal and Effective Interest Rate and Concepts of APR and APY
Nominal and Effective Interest Rates
Concept of APR (Annual Percentage Rate) and APY (Annual Percentage Yield)
Time-based Units (Interest Rate Statement)
Solving Problems related to Nominal and Effective Interest Rates
Solving Problems related to Nominal and Effective Interest Rates
Derivation of Effective Annual Interest Rate
Equivalence Relation: Payment Period and Compounding Period
Effective Interest rate of any time and Financial Effectiveness and Efficiency
Effective Interest rate for any time period
Equivalence Relation (PP<CP)
Financial Effectiveness and Efficiency
Evaluating an Engineering Project (Comparison and Selection of Alternatives)
Taking Decision on the Basis of Present and the Future Worth Method
The Present worth Method
The decision of PW Method
Relation between i & PW
Find that the Project is Economically Justified?
The Future worth Method
Taking Decision on the Basis of Annual Worth Method
The Annual worth Method
Comparing the Business Alternatives for taking the Decision
Comparing Alternative Businesses
Solving Problems related to Present worth analysis
Solving Problems related to Future worth analysis
Linear Programming
Objective Functions, Constrains and Main Elements of Linear Programming
Operations Research
Objective Functions and Constraints of Linear Programming
Main Elements of Linear Programming
The Reddy Mikks Company Model
Payback Period of any Investment
Understand Payback and Discounted Payback Period of any Business
Case 1 : For Even Cash Flow
Case 2: For Uneven Cash Flow
Solving Problems related to the Payback Period (Even and Uneven Cash Flows)
Discounted Payback Period
Internal Rate of Return and Solving Problems related to it
Internal Rate of Return
Solving Problems Related to Internal rate of Return
Understand about Incremental Cash Flow and Mutually Exclusive Project Analysis
Incremental Cash Flow
Mutually Exclusive Project Analysis
Replacement Decision Analysis and Lives of Asset
Replacement Decision Analysis
Type of Lives of Asset
1. Economic Life
2. Ownership Life
3. Physical Life
4. Useful Life
Replacement Analysis Using PW (Present worth Analysis)
Replacement Analysis using Estimated Uniform Annual Cost (EUAC)
Solving Problems related to EUAC for Replacement Analysis
Understand about the Economic Life of New Asset
Depreciation
Deprecation of Tangible and Intangible Property and Methods of Deprecation
Deprecation of Tangible and Intangible Property
Types of Depreciation (Normal and Monetary)
Methods of Deprecation
1. Straight Line (SL) Method
2. Sum of the Year Digit Method
3. Declining Balance Method
4. Double Declining Balance
Modified Accelerated Cost Recovery (MACRS)
Declining Balance with switch over Straight Line Method
Modified Accelerated Cost Recovery (MACRS)
Solving Problems related to Depreciation and MACRS
Cost Concept in Economics
Concepts of Cost, Volume and Break-Even Point for any Start-up Business
What is meant by Cost?
Elements of the Product
Prime Cost vs Conversion Cost , Fixed Cost vs Variable Cost and Types of Cost
Prime Cost vs Conversion Cost
Fixed Cost vs Variable Cost
Types of Cost
· Differential Cost
· Opportunity Cost
· Sunk Cost
· Standard/Average/Budgeted Cost
· Controllable Cost
· Uncontrollable Cost
Understanding Curve of Demand, Supply and Break-Even Point for Profit and Loss
Concept of Cost, Volume, and Break-Even Point
Understanding about Break-Even Point
Conditions for the Profit and Loss in the Business
The curve of Demand, Supply and Break-Even Point for Determining Conditions for the Profit and Loss
Solving Problems related to the Topic
Evaluating Projects with Benefit-Cost Ratio Method and Dis Benefits
Evaluating Projects with Benefit-Cost Ratio Method
Using Conventional and Modified Approaches of Present Worth
Dis benefits of Benefits Cost Ratio Method
Business Economics – Learn to Evaluate Business & Projects
Understand Fundamentals of Engineering Economics that Enable Students to Perform Economic Analysis of Different Projects”
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