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                 ENGINEERING ECONOMICS  – PROBLEM TITLES 
                        
                           Econ 00    Introduction 
                           Econ 01    Future Amount Given Present Amount 
                           Econ 02    Annual Amount Given Present Amount 
                           Econ 03    Uniform Series Amount Given Future Amount 
                           Econ 04    Compounding Within a Year 
                           Econ 05    Effective Interest 
                           Econ 06    Continuous Compounding 
                           Econ 07    Annual Cost 
                           Econ 08    Present Worth 
                           Econ 09    Positive Gradient 
                           Econ 10    Negative Gradient 
                           Econ 11    Alternatives With Different Lives – Repeatability 
                           Econ 12    Alternatives With Different Lives – Cotermination 
                           Econ 13    Existing Salvage Value 
                           Econ 14    Benefit / Cost Analysis 
                           Econ 15    Internal Rate of Return 
                           Econ 16    Inflation 
                           Econ 17    Straight Line Depreciation 
                           Econ 18    MACRS Depreciation 
                           Econ 19    Break Even Analysis 
                           Econ 20    Probability Analysis 
                           Econ 21    Economic Order Quantity 
                  
                 Engineering Economics              PDA 2001                                 1 
                 Problem Titles 
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
           
           
           
           
           
           
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          2                  PDA 2001      Engineering Economics 
                                                       
                                                                                                           Professional
                                                                                                                        
                                                                                                           Development
                                                                                                              Associates
                    ENGINEERING ECONOMICS  – INTRODUCTION 
                     
                    In many ways, your household expenses              highest worth alternative.  The interest 
                    dealing with loans fit into engineering            rate used in the analysis has a direct 
                    economic principles.  These principles             bearing on the best alternative.  A worth 
                    involve the economic analysis of                   analysis can turn out to be either positive 
                    alternatives.  For many problems, the              or negative.  A positive worth means the 
                    time value of money (interest rate) is             alternative is acceptable at the interest 
                    used to move cash flow from one point              rate used in the analysis.  It also 
                    in time to another point in time.  This is         represents the additional worth earned 
                    referred to as getting an equivalent value         above the interest rate used.  Further, it 
                    for the cash flow at one specific point or         indicates that the internal rate of return 
                    series in time (present, uniform series, or        (the actual return earned on the 
                    future).  One principle used is that the           investment) is greater than the interest 
                    interest rate must match the                       rate used in the analysis.  Do not be 
                    compounding frequency.  For example,               fooled by a negative answer.  This only 
                    use monthly interest for monthly                   means the alternative is not acceptable at 
                    compounding.                                       the interest rate used.  It does not mean 
                                                                       the alternative has lost money (although 
                    Many economic analysis problems                    that could happen).  It does tell you that 
                    involving interest rate can be solved              the internal rate of return is below the 
                    using one of these analysis techniques:            interest rate used in the analysis. 
                                                                                
                        § Annual Cost (or Worth)                       The internal rate of return is the actual 
                        § Present Cost (or Worth)                      interest earned by the investment.  Only 
                        § Future Cost (or Worth)                       a worth alternative has an internal rate of 
                        § Internal Rate of Return                      return.  A cost alternative does not have 
                        § Benefit Cost Analysis                        an internal rate of return.  A common 
                                                                       way to determine the internal rate of 
                    A cost analysis is one where almost all            return is to write the present worth 
                    the dollars are going out (except salvage          equation and set it equal to zero.  If there 
                    value).  You want to  choose the                   are two or more different factors, then 
                    alternative with the least cost.  The least        solve by trial and error by selecting an 
                    cost alternative will be the same one              interest rate that comes closest to having 
                    regardless of the interest rate used in the        the present worth equal zero.  For the FE 
                    analysis.  The top three techniques rely           exam, select either (B) or (C) to get 
                    on the same principles of moving cash              started.  If the present worth is positive 
                    flows to the desired analysis reference            (greater than zero), select a higher 
                    point (annual, present or future).  Annual         interest rate.  If the present worth is 
                    costs are a type of uniform series                 negative (below zero), select a lower 
                    amount.                                            interest rate.  One of the answers should 
                                                                       result in the present worth being very 
                    A worth analysis is where an income is             close to zero. 
                    present in addition to expenses.  For                       
                    these problems, you want to choose the 
                    Engineering Economics                     PDA 2001                                           3 
                    Introduction 
                   
                  Benefit cost analysis can be used for a        You are likely to be  tested on 
                  single alternative and also for comparing      depreciation.  Depreciation is used to 
                  alternatives.  These problems are best         estimate the  book value of an item at 
                  analyzed by converting all benefits and        some point in time.  It is also used to 
                  all costs into equivalent annual amounts.      reduce taxes.  The two types of 
                  In this manner, any differences in the         depreciation mentioned in the  FE 
                  lives of alternatives can be ignored.          Reference Handbook are straight line 
                  Some problems may look like they only          and MACRS.  Straight line is very 
                  have costs and no benefits.  In this case,     simple.  Modified Accelerated Cost 
                  look for a reduction in some common            Recovery System was started by the 
                  cost to be the benefit in comparing            IRS to both simplify tax accounting and 
                  alternatives.                                  create favorable cash flow in the early 
                                                                 years of a new company.  Carefully look 
                  Some specialized elements of cash flows        over these depreciation techniques. 
                  that you could see on the exam include                 
                  gradients (positive and negative),             Some other types of analysis that do not 
                  continuous compounding,  effective             rely on interest rate are  break even 
                  interest,  alternatives with different         analysis,  probability analysis, and 
                  lives, and  inflation.  Carefully review       economic order quantity.  You may see 
                  these problem solutions on the CD if you       one or more of these problems on your 
                  are unfamiliar with them.                      exam, so carefully review the principles 
                                                                 behind them. 
                  4                                      PDA 2001                  Engineering Economics 
                                                                                              Introduction