Engineering Economic Analysis 14th Edition by Donald Newnan, ISBN-13: 978-0190931919

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• Publisher: ‎ Oxford University Press; 14th edition (February 15, 2019)
• Language: ‎ English
• ISBN-10: ‎ 0190931914
• ISBN-13: ‎ 978-0190931919

Engineering Economic Analysis offers comprehensive coverage of financial and economic decision making for engineers, with an emphasis on problem solving, life-cycle costs, and the time value of money. The authors’ clear, accessible writing, emphasis on practical applications, and relevant contemporary examples have made this text a perennial bestseller. With its logical organization and extensive ancillary package, Engineering Economic Analysis is widely regarded as a highly effective tool for teaching and learning. This 14th edition includes crucial updates to cover new US tax laws and software that will algorithmically generate and automatically grade homework problems.

Table of Contents:

Cover
Title page
Copyright
Dedication
CONTENTS IN BRIEF
CONTENTS
PREFACE
CHAPTER 1: MAKING ECONOMIC DECISIONS
Delivered Food and Decision Making
A SEA OF PROBLEMS
Simple Problems
Intermediate Problems
Complex Problems
THE ROLE OF ENGINEERING ECONOMIC ANALYSIS
Examples of Engineering Economic Analysis
THE DECISION-MAKING PROCESS
Rational Decision Making
ETHICS
Ethical Dimensions in Engineering Decision Making
Importance of Ethics in Engineering and Engineering Economy
ENGINEERING DECISION MAKING FOR CURRENT COSTS
WHEN MORE THAN ECONOMICS IS INVOLVED
SUMMARY
PROBLEMS
CHAPTER 2: ESTIMATING ENGINEERING COSTS AND BENEFITS
LightTUBe
FIXED, VARIABLE, MARGINAL, AND AVERAGE COSTS
Sunk Costs
Opportunity Costs
Recurring and Nonrecurring Costs
Incremental Costs
Cash Costs Versus Book Costs
CONSIDERING ALL COSTS
Life-Cycle Costs
Design Changes and Cost Impacts
Internal and External Costs
ESTIMATING BENEFITS
THE ESTIMATING PROCESS
Types of Cost Estimates
Accuracy of Estimate
Difficulties in Estimation
ESTIMATING MODELS
Per-Unit Model
Segmenting Model
Cost and Price Indexes
Power-Sizing Model
Triangulation
Improvement and the Learning Curve
CASH FLOW DIAGRAMS
Categories of Cash Flows
Drawing a Cash Flow Diagram
Drawing Cash Flow Diagrams with a Spreadsheet
SUMMARY
PROBLEMS
TRUST ME: YOUU’LL USE THIS
CHAPTER 3: INTEREST AND EQUIVALENCE
A Prescription for Success
COMPUTING CASH FLOWS
TIME VALUE OF MONEY
Simple Interest
Compound Interest
Repaying a Debt
EQUIVALENCE
Difference in Repayment Plans
Equivalence Is Dependent on Interest Rate
Differences in Economically Equivalent Plans
SINGLE PAYMENT COMPOUND INTEREST FORMULAS
NOMINAL AND EFFECTIVE INTEREST
SUMMARY
PROBLEMS
CHAPTER 4: EQUIVALENCE FOR REPEATED CASH FLOWS
Student Solar Power
UNIFORM SERIES COMPOUND INTEREST FORMULAS
CASH FLOWS THAT DO NOT MATCH BASIC PATTERNS
ECONOMIC EQUIVALENCE VIEWED AS A MOMENT DIAGRAM
RELATIONSHIPS BETWEEN COMPOUND INTEREST FACTORS
Single Payment
Uniform Series
ARITHMETIC GRADIENT
Derivation of Arithmetic Gradient Factors
Reality and the Assumed Uniformity of A, G, and g
GEOMETRIC GRADIENT
SPREADSHEETS FOR ECONOMIC ANALYSIS
Spreadsheets: The Tool for Engineering Practice
Spreadsheet Block Functions for Cash Flow Tables
COMPOUNDING PERIOD AND PAYMENT PERIOD DIFFER
SUMMARY
PROBLEMS
CHAPTER 5: PRESENT WORTH ANALYSIS
The Present Value of 30 Years Of Benefits
ASSUMPTIONS IN SOLVING ECONOMIC ANALYSIS PROBLEMS
End-of-Year Convention
Viewpoint of Economic Analysis Studies
Sunk Costs
Borrowed Money Viewpoint
Effect of Inflation and Deflation
Income Taxes
ECONOMIC CRITERIA
TIME PERIOD FOR ANALYSIS
Useful Lives Equal the Analysis Period
Useful Lives Different from the Analysis Period
Infinite Analysis Period: Capitalized Cost
MULTIPLE ALTERNATIVES
APPLICATIONS AND COMPLICATIONS
Bond Pricing
SUMMARY
PROBLEMS
CHAPTER 6: ANNUAL CASH FLOW ANALYSIS
Are More Efficient Appliances Cost Effective?
ANNUAL CASH FLOW CALCULATIONS
Resolving Cash Flows to an Annual Equivalent
Irregular Cash Flows
Capital Recovery Costs
Annual Equivalent with Gradient and Overhaul
ANNUAL CASH FLOW ANALYSIS
ANALYSIS PERIOD
Analysis Period Equal to Alternative Lives
Analysis Period a Common Multiple of Alternative Lives
Analysis Period for a Continuing Requirement
Infinite Analysis Period
Some Other Analysis Period
ANALYZING LOANS
Building an Amortization Schedule
Finding the Balance Due on a Loan
How Much to Interest? How Much to Principal?
Pay Off Debt Sooner by Increasing Payments
ANNUITY DUE
SUMMARY
PROBLEMS
CHAPTER 7: RATE OF RETURN ANALYSIS
What a Marvel! Iron Man
INTERNAL RATE OF RETURN
CALCULATING RATE OF RETURN
Plot of NPW Versus Interest Rate i
INTEREST RATES WHEN THERE ARE FEES OR DISCOUNTS
LOANS AND INVESTMENTS ARE EVERYWHERE
INCREMENTAL ANALYSIS
ANALYSIS PERIOD
GOAL SEEK
XIRR
SUMMARY
PROBLEMS
APPENDIX 7A DIFFICULTIES IN SOLVING FOR AN INTEREST RATE
What to Do If Cash Flow Diagram Has Two or More Sign Changes
Projects with Multiple Sign Changes
Modified Internal Rate of Return (MIRR)
SUMMARY
PROBLEMS
CHAPTER 8: CHOOSING THE BEST ALTERNATIVE
Selecting the Best Pavement
INCREMENTAL ANALYSIS
GRAPHICAL SOLUTIONS
ELEMENTS IN COMPARING MUTUALLY EXCLUSIVE ALTERNATIVES
DOING A SET OF INCREMENTAL CHALLENGERU–DEFENDER COMPARISONS
CHOOSING AN ANALYSIS METHOD
SUMMARY
PROBLEMS
CHAPTER 9: OTHER ANALYSIS TECHNIQUES
Clean, Lower Cost Space Travel
FUTURE WORTH ANALYSIS
BENEFITU–COST RATIO ANALYSIS
Variations on the Theme of the BenefitU–Cost Ratio
PAYBACK PERIOD
SENSITIVITY AND BREAKEVEN ANALYSIS
GRAPHING WITH SPREADSHEETS FOR SENSITIVITY AND BREAKEVEN ANALYSIS
DOING WHAT-IF ANALYSIS WITH SPREADSHEETS
SUMMARY
PROBLEMS
APPENDIX 9A INVESTING FOR RETIREMENT AND OTHER FUTURE NEEDS
Defined Contribution and Defined Benefit Plans
What Returns Are Reasonable to Expect and What Risks Go with Them
PROBLEMS
CHAPTER 10: UNCERTAINTY IN FUTURE EVENTS
Moving the Load
ESTIMATES AND THEIR USE IN ECONOMIC ANALYSIS
A RANGE OF ESTIMATES
PROBABILITY
JOINT PROBABILITY DISTRIBUTIONS
EXPECTED VALUE
ECONOMIC DECISION TREES
RISK
Calculating the Standard Deviation
RISK VERSUS RETURN
Risk and Return as Multiple Objectives
SIMULATION
REAL OPTIONS
SUMMARY
PROBLEMS
APPENDIX 10A DIVERSIFICATION REDUCES RISK
Portfolios of Stocks and Bonds
Making the Trade-Off Between Risk and Return
PROBLEMS
CHAPTER 11: DEPRECIATION
Depreciation and Intangible Property
INCOME, DEPRECIATION, CASH FLOW, AND VALUATION
BASIC ASPECTS OF DEPRECIATION
Deterioration and Obsolescence
Depreciation and Expenses
Types of Property
Depreciation Calculation Fundamentals
Depreciation and Asset Disposal
TIME- AND VALUE-BASED DEPRECIATION
Straight-Line Depreciation
Declining Balance Depreciation
DEPRECIATION FOR TAXESU—BONUS DEPRECIATION
Tax Cuts & Jobs Act
DEPRECIATION FOR TAXESU—MACRS DEPRECIATION
Property Class and Recovery Period
Percentage Tables
Calculating and Using MACRS Percentage Rates (rt)
DEPRECIATION FOR TAXESU—BONUS PLUS MACRS
COMPARING DEPRECIATION METHODS
UNIT-OF-PRODUCTION DEPRECIATION
DEPLETION
Cost Depletion
Percentage Depletion
SPREADSHEET FUNCTIONS FOR DEPRECIATION
SUMMARY
PROBLEMS
CHAPTER 12: INCOME TAXES FOR CORPORATIONS
Corporate Taxes Around The World: How to Compare?
A PARTNER IN THE BUSINESS
CALCULATION OF TAXABLE INCOME
Classification of Business Expenditures
Taxable Income of Business Firms
INCOME TAX RATES
Corporate Tax Rates
Combined Federal and State Income Taxes
ECONOMIC ANALYSIS TAKING INCOME TAXES INTO ACCOUNT
INVESTMENT TAX CREDIT
THE AFTER-TAX RATE OF RETURN
After-Tax Rate of Return with 100% Bonus Depreciation Can Equal Before-Tax Rate
Estimating a ProjectU’s After-Tax IRR
FirmU’s After-Tax Minimum Attractive Rate of Return
CAPITAL GAINS AND LOSSES FOR NONDEPRECIATED ASSETS
SUMMARY
PROBLEMS
APPENDIX 12A TAXES AND PERSONAL FINANCIAL DECISION MAKING
Income Taxes for Individuals
Calculating Taxes Due
Withholding Taxes
Tax Cuts and Jobs Act and Personal Income Taxes
Combined Federal and State Income Taxes
Capital Gains/Losses for Individuals
Tax Credits vs. Tax Deductions
Student Loan Interest Deduction
Student Loans
Retirement Accounts
Insurance
Automobile Insurance
Life Insurance
Personal Budgeting
PROBLEMS
CHAPTER 13: ECONOMIC LIFE AND REPLACEMENT ANALYSIS
Aging Bridges
ECONOMIC LIFE OF A NEW ASSET
Drivers Behind the Economic Life
Spreadsheets for Economic Life
Including Salvage Values and Overhauls
Economic Life, Unplanned Repairs, and the Opportunity Cost of New Alternatives
REPLACEMENT ANALYSIS
The Replacement Problem
Replacement Analysis Common Scenario
MARGINAL COSTS
COMPLICATIONS IN REPLACEMENT ANALYSIS
Other Scenarios for Replacement Analysis
Defining First Costs for Existing and Replacement Assets
A Closer Look at Future Alternatives
AFTER-TAX REPLACEMENT ANALYSIS
Economic or Minimum Cost Life Problems
Marginal Costs on an After-Tax Basis
SUMMARY
PROBLEMS
CHAPTER 14: INFLATION AND PRICE CHANGE
Price Trends in Solar Technologies
MEANING AND EFFECT OF INFLATION
How Does Inflation Happen?
Definitions for Considering Inflation in Engineering Economy
ANALYSIS IN CONSTANT DOLLARS VERSUS THEN-CURRENT DOLLARS
Inflation and Uniform Flow Equivalence
PRICE CHANGE WITH INDEXES
What Is a Price Index?
Composite Versus Commodity Indexes
How to Use Price Indexes in Engineering Economic Analysis
CASH FLOWS THAT INFLATE AT DIFFERENT RATES
DIFFERENT INFLATION RATES PER PERIOD
INFLATION EFFECT ON AFTER-TAX CALCULATIONS
USING SPREADSHEETS FOR INFLATION CALCULATIONS
SUMMARY
PROBLEMS
CHAPTER 15: SELECTION OF A MINIMUM ATTRACTIVE RATE OF RETURN
WhatU’s the Rate of Return on a Dam?
MARR FOR INDIVIDUALS
SOURCES OF CAPITAL
Money Generated from the FirmU’s Operations
External Sources of Money
Choice of Sources of Funds
COST OF FUNDS
Cost of Borrowed Money
Cost of Capital
Inflation and the Cost of Borrowed Money
INVESTMENT OPPORTUNITIES
Opportunity Cost
SELECTING A MINIMUM ATTRACTIVE RATE OF RETURN
ADJUSTING MARR TO ACCOUNT FOR RISK AND UNCERTAINTY
REPRESENTATIVE VALUES OF MARR USED IN INDUSTRY
CAPITAL BUDGETING OR SELECTING THE BEST PROJECTS
SUMMARY
PROBLEMS
CHAPTER 16: ECONOMIC ANALYSIS IN THE PUBLIC SECTOR
From Waste to Power and Money
INVESTMENT OBJECTIVE
VIEWPOINT FOR ANALYSIS
SELECTING AN INTEREST RATE
No Time-Value-of-Money Concept
Cost of Capital Concept
Opportunity Cost Concept
Recommended Concept
THE BENEFITU–COST RATIO
INCREMENTAL BENEFITU–COST ANALYSIS
Elements of the Incremental BenefitU–Cost Ratio Method
OTHER EFFECTS OF PUBLIC PROJECTS
Project Financing
Project Duration
Quantifying and Valuing Benefits and Disbenefits
Project Politics
SUMMARY
PROBLEMS
CHAPTER 17: ACCOUNTING AND ENGINEERING ECONOMY
A Tale of Three Engineers
THE ROLE OF ACCOUNTING
Accounting for Business Transactions
THE BALANCE SHEET
Assets
Liabilities
Equity
Financial Ratios Derived from Balance Sheet Data
THE INCOME STATEMENT
Financial Ratios Derived from Income Statement Data
Linking the Balance Sheet, Income Statement, and Capital Transactions
TRADITIONAL COST ACCOUNTING
Direct and Indirect Costs
Indirect Cost Allocation
Problems with Traditional Cost Accounting
Other Problems to Watch For
SUMMARY
PROBLEMS
APPENDIX A: INTRODUCTION TO SPREADSHEETS
APPENDIX B: TIME VALUE OF MONEY CALCULATIONS USING SPREADSHEETS AND CALCULATORS
APPENDIX C: COMPOUND INTEREST TABLES
APPENDIX D: FUNDAMENTALS OF ENGINEERING (FE) EXAM PRACTICE PROBLEMS
APPENDIX E: SELECTED ANSWERS TO END-OF-CHAPTER PROBLEMS
PHOTO CREDITS
REFERENCES
INDEX

Donald Newnan is an Emeritus Professor at San Jose State University. Ted Eschenbach is a consultant and Professor Emeritus of Engineering Management at the University of Alaska Anchorage. Jerome Lavelle is Assistant Dean in the College of Engineering and Associate Professor of Industrial Engineering at North Carolina State University. Neal A. Lewis worked as an engineer for Proctor and Gamble and Bayer for over 25 years before turning his attention to teaching. He was an Associate Professor at Marshall University and the University of Bridgeport for 12 years. He is currently an instructor at the University of New Haven and Fairfield University.

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