Chapter 1 Flashcards
Why are decisions made routinely
To choose one alternative over another
Capital or Capital Funds
Money, which is usually limited in amount
Engineering Economics Definition
Engineering economy involves formulating, estimating, and evaluating the expected economic outcomes of alternatives designed to accomplish a defined purpose. Mathematical techniques, simplified economic evaluation of alternatives..
Four main elements of engineering economics decision making
Cash flow
Times of occurrence of cash flows
Interest rates for time value of money
Measures of worth for selecting an alternative
Sensitivity Analysis
Is utilized to determine how a decision might change according to varying estimates especially those expected to vary wildly
Measure of Worth
The criterion used to select an alternative and Engineering economy for a specific set of estimates.
The measures of worth used in this text:
Present worth (PW)
Rate of return (ROR)
Payback period
Future worth (FW)
Benefit/cost (B/C)
Profitability index
Annual worth (AW)
Capitalized cost (CC)
Economic value added (EVA)
Time value of money
It is well known fact that money makes money. The time value of money explains the change in the amount of money overtime for funds that are owned invested or owed borrowed. This is the most important concept in engineering economy.
The steps in an engineering economy study are as follows
- Identify and understand the problem, identify the objective of the project.
- Collect relevant, available data, and viable solution alternatives.
- Make realistic, cash flow estimates.
- Identify an economic measure of work, criterion for decision-making.
- Evaluate each alternative considered non-economic factors sensitivity analysis as needed.
- Select the best alternative.
- Implement the solution and monitor the results.
Morals
Relate to the underlying tenets that form the character and conduct of a person and judging right and wrong.
Ethics
Ethical practices can be evaluated by using a code of morals or code of ethics that forms the standard to guide decisions and actions of individuals and organizations in a profession. For example, electrical chemical, mechanical industrial or civil engineering.
Universal or common morals
These are the fundamental moral beliefs held by virtually all people. Most people agree that Tal, murder, lie or physically harm Someone is wrong.
Individual or personal morals
These are the moral beliefs that a person has and maintain overtime. These usually parallel, the common morals, and that stealing, lying, murdering, etc., are immoral acts.
Professional or engineering ethics
Professionals in a specific discipline or guided in their decision-making and performance of work activities by a formal standard or code the code states the commonly accepted standards of honesty and integrity that each individual is expected to demonstrate in her or his practice. There are codes of ethics for medical doctors, attorneys, and of course, engineers.
Interest
Is the manifestation of the time value of money
Interest paid
Is when a person or organization borrowed money and repay a larger amount overtime
Interest earned
Is when a person or organization saved invested or lent money and obtain a return of a larger amount overtime
Formula for interest paid
Interest = amount owed now-principal
Interest Rate formula
Interest rate % = interest accrued per time unit/ principal * 100
Interest earned formula
Interest earned = total amount now-principal
Rate of Return formula
Interest earned over a specific period of yimd
ROR = interest accrued per time unit/principal *100
Interest period
The time unit for rate of return
Inflation
Represents a decrease in the value of a given currency
P
Value or amount of money at a time designated as the present time or zero. Also P is referred to as present worth, present value, net present value, discounted, cash flow, and capitalized cost, monetary units, such as dollars.
