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Engineering Economics Analysis (Part 1 of 2)
Project Selection Methods, Feasibility Study, Project Appraisal, Project Valuation, Economic Investment Decision-Making
Main concept of time value of money
Simple and compound interest rates
Economic Equivalence with different cash flows (e.g. single, uniform, gradient, etc.)
How to differentiate between “Nominal” and “Effective” interest rates
How to deal with multiple compounding of interests
How to deal with changing interest rates over time
How analyze a commercial loan
How to consider inflation in your analysis
How to measure the profitability of an investment
How to compare between independent and/or mutually exclusive investments
Any engineering or non-engineering project, business, or investment usually starts by mixed virtual ideas and thoughts. To be translated into reality, such ideas will require several resources, in which the “capital cost” is the most essential. However, before investing our capital cost, several questions need to be answered from an “economic” perspective, such as:
– Is the expected return from the project or investment worth the capital cost?
– Are there other alternatives?
– What are the other alternatives?
– Which alternative is the best?
– What is the confidence level of my selected alternative?
– Etc.
Engineering Economic Analysis can answer these questions and more. In other words, this course is all about decision making from an economic perspective. The term “Engineering” exists as this course will be focusing more on engineering projects. However, the same concept can be applied for non-engineering projects (e.g. importing and selling goods, adopting a new accounting system in your firm, etc.).
Even on a personal level, we deal with “money” on a daily basis. Thus, this course can also help us to understand the management of money and to take economic decisions such as:
– Buy or lease a car,
– Open a saving account in Bank (A) or (B),
– How much saving shall I make each month to have $500K in my account 20 years from now?
– Etc.
This course is divided into two parts with a total of 101 carefully selected examples solved in details to ensure you understand the concept. The main topics that will be covered in part (1) are as follows (see the course contents for more details):
– Time Value of Money
– Economic Equivalence
– Nominal and Effective Interest Rates
– Commercial Loans
– Inflation
– Measuring Worth of Investments
– Comparison of Investments
While, the main topics to be covered in part (2) are as follows:
– Supplementary Analysis
– Capital Budgeting
– Depreciation
– Taxation
– Replacement Analysis
– Economic Analysis in Public Sector
– MARR Selection
SECTION (2): TIME VALUE OF MONEY
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1
Lec. (1.1) Welcome -
2
Lec. (1.2) Project Life Cycle Stages
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3
Lec. (1.3) What is a Feasibility Study?
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4
Lec. (1.4) Feasibility Study Process
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5
Lec. (1.5) What is Engineering Economic Analysis?
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6
Lec. (1.6) Engineering Economic Analysis Steps
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7
Lec. (1.7) Cost Terminologies
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8
Lec. (1.8) Topics to be covered in Part (1)
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9
Lec. (1.9) Course Management Recommendations
SECTION (3): ECONOMIC EQUIVALENCE
SECTION (4): MONEY MANAGEMENT
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15
Economic Equivalence Interest Tables -
16
Examples on Section 3
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17
Lec. (3.1) Economic Equivalence Concept
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18
Lec. (3.2) Single Cash Flow
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19
Lec. (3.3) Uniform (Equal) Series Cash Flow
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20
Lec. (3.4) Uneven (Irregular) Series Cash Flow
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21
Lec. (3.5) Arithmetic (Linear) Gradient Series Cash Flow
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22
Lec. (3.6) Geometric Gradient Series Cash Flow
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23
Lec. (3.7) Composite Cash Flow
SECTION (5): MEASURING WORTH OF INVESTMENTS
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24
Examples on Section 4
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25
Lec. (4.1) Money Management Aspects
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26
Lec. (4.2) Multiple Compounding Periods Concept
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27
Lec. (4.3) Nominal and Effective Interest Rates
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28
Lec. (4.3A) Case 1 (Approach 1)
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29
Lec. (4.3B) Case 2 (Approach 2)
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30
Lec. (4.3C) Case 2 (Approach 3)
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31
Lec. (4.3D) Case 3 (Approach 4)
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32
Lec. (4.3E) Approaches Summary
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33
Lec. (4.4) Changing Interest Rates
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34
Lec. (4.5) Amortized Loans
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35
Lec. (4.6) Add-On Loans
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36
Lec. (4.7) Customized Loans
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37
Lec. (4.8) Inflation
SECTION (6): COMPARISON OF INVESTMENTS
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38
Examples on Section 5
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39
Lec. (5.1) Project Cash Flow
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40
Lec. (5.2) Measuring Worth of Investments Methods
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41
Lec. (5.3) Payback Period Method
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42
Lec. (5.4) Net Present Worth Method
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43
Lec. (5.5) Net Future Worth Method
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44
Lec. (5.6) Net Annual Worth Method
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45
Lec. (5.7) Internal Rate of Return (IRR) Method
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46
Lec. (5.7A1) IRR Direct Solution Method
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47
Lec. (5.7A2) IRR Trial and Error Method
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48
Lec. (5.7A3) IRR Computer Solution Method
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49
Lec. (5.7B) IRR for Non-Simple Investments
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50
Lec. (5.7C) Limitations of IRR Method
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51
Lec. (5.8) External Rate of Return Method
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52
Lec. (5.9) Saving / Investment Ratio Method
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53
Lec. (5.10) Capitalized Equivalent Method
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