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CH 1 Engineering Economic Decisions
CH 1 Engineering Economic Decisions
Lecture No. 1
Chapter 1
Contemporary Engineering Economics, 6th ed.
Copyright © 2016
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
What Is an Engineering Economic
Decision?
Role of engineers in business
Understanding the term “engineering economic
decision”
An overview of a variety of engineering economic
decision problems
Understanding the fundamental principles of
engineering economics
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Role of Engineers in Business
Create and Design
• Engineering Projects
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Types of Business
• Trading - the business which buy products and
then selling those products to customers e.g.
wholesalers and retailers
• Service industries - provide service to customers
such as doctors, lawyers, accountants etc.
• Manufacturing - the business which convert raw
material into finished product and sell the
finished products to customers e.g. factory
manufacturing electrical goods, foods, cars etc.
Sole
Partnerships
Proprietorships
Corporations Others
• Private Ltd • Company Ltd by
• Public Ltd Guarantee
• Foreign Co.
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Types of Business Organization
Definition
Governed by
Legal entity
Liability
Management
Ease of operation
Taxation
Term
Capital raising
Manufactur-
Planning Profit
ing
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
What Makes Engineering Economic
Decisions Difficult?
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Accounting Vs. Engineering Economy
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Common Types of Strategic
Engineering Economic Decisions
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Fundamental Principles of
Engineering Economics
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Principle 1: A dollar earned today is worth more than a dollar earned
in the future.
$121
$110 two
one years
$100 year later
today later
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Principle 2: The only thing that matters is
the difference between alternatives.
Option Monthly Monthly Cash Monthly Salvage
fuel cost maintenance outlay at payment value at
signing end of
year 3
Marginal
cost
Marginal
Sales revenue 1 unit revenue
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Principle 4: Additional risk is not taken
without the expected additional return.
Investment Class Potential Expected
Risk Return
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved
Two Factors in Engineering Economic
Decisions
• Time
• Uncertainty
Contemporary Engineering Economics, 6th edition Copyright © 2016 by Pearson Education, Inc.
Park All Rights Reserved