MGTS 301 – ENGINEERING ECONOMICS

Credit Hours: 3
The objective of the course is to provide students with a sound understanding of basic concepts
of economic equivalence and methodology of engineering economy. The students will develop
proficiency with these methods and with the process for facilitating rational decisions they are
likely to encounter in professional practice.
1. Fundamentals of Engineering Economy (4 Hours)
1.1. Definitions and Concepts of Microeconomics, Macroeconomics, Gross Domestic
Product (GDP), Managerial Economics, Law of Supply and Demand, Market
Equilibrium
1.2. Introduction to Engineering Economy, Principles of Engineering Economy, Engineering
Economy and the Design Process
2. Cost Concepts and Design Economics (8 Hours)
2.1. Cost Concepts and Classifications, General Economic Environment - Consumer and
Producer Goods and Services, Concept of Utility and Value, Necessities, Luxuries, Price
Demand Relationship, Classification of Market Structure (Perfect Competition,
Monopolistic Competition, Oligopoly, and Monopoly), Total Revenue Function, Cost,
Volume, and Breakeven Point Relationships, Present Economy Studies
2.2. Cost-Estimation Techniques - Integrated Approach to Developing the Cash Flow,
Selected Estimating Models - Indexes, Unit and Factor Technique, Power Sizing,
Learning Curve, Cost Estimation in the Design Process, Concept of Value Engineering
3. Time Value of Money (8 Hours)
3.1. Introduction, Simple and Compound Interest, Concept of Equivalence, Cash-Flow
Diagrams, Calculation of Present, Future and Annual Equivalent - Single Cash Flows,
Uniform Series (Annuity, Deferred Annuity, Uniform and Geometric Gradient Series),
Interest Rates that Vary with Time
3.2. Nominal and Effective Interest Rate, Effective Interest Rate per Payment Period,
Continuous Compounding
4. Methods for Evaluating the Economic Profitability (12 Hours)
4.1. Concept of the Minimum Attractive Rate of Return (MARR), Single Project Evaluation
using Present Worth Method, Future Worth Method, Annual Worth Method, Internal
Rate of Return Method, External Rate of Return Method, Payback Period Method
4.2. Basic Concepts for Comparing Alternatives, Comparison of Mutually Exclusive
Alternatives using Equivalent-Worth Methods and Rate-of-Return Methods (Incremental
Analysis), Useful Lives Equal to the Study Period, Useful Lives Unequal among the
Alternatives. Personal Finances
5. Depreciation (4 Hours)
5.1. Concepts and Terminology, Classification of Depreciable Property
5.2. Classical Depreciation Methods – Straight-Line Method, Declining-Balance Method,
Declining-Balance with Switchover to Straight-Line, Sinking Fund Method, Sum-of-
Years-Digit and Units-of-Production Method
6. Replacement Analysis (4 Hours)
6.1. Reasons for Replacement Analysis, Factors to Consider in Replacement Studies
6.2. Determining the Economic Life of a New and an Existing Asset
7. Benefit-Cost Ratio Method (4 Hours)
7.1. Introduction to Public Projects, Difficulties in Evaluating Public-Sector Projects
7.2. Benefit-Cost Ratio Method, Comparison of Mutually Exclusive Projects by B-C Ratios
8. Project Risk and Uncertainty (4 Hours)
8.1. Origins/Sources of Project Risks and Uncertainty
8.2. Breakeven and Sensitivity Analysis, Scenario Analysis

Basic Text
 Sullivan, W. G., Wicks, E. M., & Koelling, C.P. (2011). Engineering Economy. Pearson
India.
References
 Blank, Leland & Tarquin (2012), Engineering Economy, Tata McGraw-Hill, New Delhi
 Park, C. S. (2015). Contemporary Engineering Economics. Prentice-Hall India
 Mankiw, N. Gregory (2014). Principles of Economics, Cengage Learning

Evaluation Scheme:
 In-Semester Evaluation: 50%
 End-Semester Evaluation: 50%