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Engineering Online

ISE 510 Applied Engineering Economy

3 Credit Hours

Engineering economy analysis of alternative projects including tax and inflation aspects, sensitivity analysis, risk assessment, decision criteria. Emphasis on applications.

Prerequisite

An undergraduate course in math or statistics

Course Objectives

The course aims to provide the students the advanced concepts of engineering economic analysis and various tools to solve the capital investment problems. The course will address how to model and solve the engineering economy problems in various practical situations. The topics cover cost/revenue estimating techniques, discounted cash flow analysis techniques, sensitivity and breakeven analysis, depreciation and after-tax analysis, decision making under uncertainty (the use of simulation, probability theory, decision rules/criteria) and formulation of capital investment problems using mathematical programming.

Learning Outcomes

By the end of this course, students will be able to:

  1. Understand the important concepts of the engineering economy (time value of money, interest, etc.)
  2. Apply cost/revenue estimating techniques to estimate the parameters for the engineering economy problems
  3. Derive and apply the various interest formula to solve the cash flow problems in the most computationally efficient way.
  4. Understand the capabilities and limitations of the various cash flow analysis techniques for evaluating the capital investments.
  5. Apply the cash flow analysis using computer tools (Excel spreadsheet).
  6. Recognize, formulate and solve the engineering economy problems in various practical situations.
  7. Do an after-tax analysis of the investment alternatives. Understand the advantages and limitations of the different depreciation techniques considered for calculating taxes and recognize how they affect the after-tax rate of return of the investments.
  8. Apply probability theory and simulation to deal with the random parameters when evaluating the investment alternatives under risk.
  9. Apply various decision rules/criteria to evaluate the investment problems under uncertain states of environment.
  10. Formulate and solve the capital investment problems using mathematical programming.

Course Topics

  • Economic Decision Making and Cost Concepts
  • Concepts of Interest and Monetary Equivalence for Cash Flows (Interest factors)
  • Equivalent Worth Methods (Present Worth, Future Worth, Annual Worth Analysis)
  • Rate of Return Analysis (Internal Rate of Return, External Rate of Return)
  • Other Techniques (Benefit/Cost Ratio Analysis, Payback period)
  • Sensitivity and Breakeven Analysis
  • Depreciation and After-Tax Analysis
  • Capital Investment Analysis in an Uncertain World
    • Analytical methods for risk analysis (use of probability theory)
    • Simulation method for risk analysis
    • Decision rules/criteria for risk and uncertainty
  • Use of Mathematical Programming for Capital Investment Problems

Course Requirements

AssignmentsPercentage Weighting
Homework assignments (10-12)20%
Exam 1 (Week 5 or 6)20%
Exam 2 (Week 10 or 11)30%
Exam 3 (Final Exam)30%

Textbooks

Capital Investment Analysis for Engineering and Management, John R. Canada, William G. Sullivan, Dennis J. Kulonda, John A. White, 3rd Edition, 2005, Pearson Prentice Hall, ISBN: 0-13-143408-X

Engineering Economic Analysis, Donald G. Newnan, Jerome P. Lavelle, Ted G. Eschenbach, 12th Edition, ISBN: 978-0-19-933927-3

Software Requirements

Microsoft Excel

Updated 11/18/2022