Engineering Economics

Course Objectives
To provide a knowledge of the basic tools and methodology of economic studies for evaluating engineering projects in private industry, in the public sector and in the utilities area.

1.0 Introduction (3 hours)
1.1 Essential business and accounting terminology
1.2 Definition of cash flow
1.3 Economic systems

2.0 Cost Classification and Analysis (5 hours)
2.1 The elements of cost
2.2 Classification of cost: overhead cost, prime cost
2.3 Cost variance analysis
2.4 Job and process costing

3.0 Interest and the Time Value of Money (6 hours)
3.1 Simple interest, compound interest, interest tables, interest charts
3.2 Present worth
3.3 Nominal and effective interest rates
3.4 Continuous compounding and continuous compounding formula
3.5 Interest calculations for uniform gradient

4.0 Basic Methodologies of Engineering Economic Studies (7 hours)
4.1 Present worth and annual worth methods
4.2 Future worth method
4.3 Internal rate of return method
4.4 Drawbacks of the internal rate of return method
4.5 External rate of return method
4.6 Minimum attractive rate of return method
4.7 The payback (payout) period method

5.0 Cost/Benefit Analysis (4 hours)
5.1 Conventional cost/benefit ratio
5.2 Modified cost/benefit ratio
5.3 Breakeven analysis

6.0 Investment Decisions: (8 hours)
6.1 Comparison of alternatives having same useful life
6.2 Comparison of alternatives having different useful life
6.3 Comparison of alternatives including or excluding the time value of money
6.4 Comparison of alternatives using the capitalized worth method
6.5 Definition of mutually exclusive investment alternatives in terms of
combinations of projects
6.6 Comparison of mutually exclusive alternatives

7.0 Risk Analysis: (4 hours)
7.1 Projects operating under conditions of certainty
7.2 Projects operating under conditions of uncertainty
7.3 Decision tree
7.4 Sensitivity analysis

8.0 Taxation System in Nepal: (3 hours)
8.1 Taxation law in Nepal
8.2 Depreciation rates for buildings, equipment, furniture, etc.
8.3 Recaptured depreciation
8.4 Taxes on normal gains
8.5 Taxes on capital gains

9.0 Demand Analysis and Sales Forecasting (5 hours)
9.1 Demand analysis
9.2 Correlation of price and consumption rate
9.3 Multiple correlation of price and consumption rate
9.4 Market research
9.5 Sales forecasting
9.6 Criteria for desirable sales forecasting procedures
9.7 Factors affecting accuracy of forecasting

Tutorials: 3 Assignments, 2 Quizzes, 3 Case Studies

Note:
The case studies will concentrate on economic analysis and selection of public projects, economic analysis and selection of private projects, risk analysis and demand analysis.

Textbook:
1.0 E. P. DeGramo, W. G. Sullivan and J. A. Bontadelli, 8th Edition, Macmillan publishing Company, ,1988.

References:
1.0 N. N. Borish and S. Kaplan, "Economic Analysis: For Engineering and Managerial Decision Making", McGraw-Hill.