# ENGINEERING ECONOMICS PDF

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At what rate would the person earn interest, if the interest was compounded annually? In such situations, there are two expressions for the interest rate.

The nominal interest rate, r, is expressed on an annual basis; this is the rate that is normally quoted when describing an interest-bearing transaction.

The effective interest rate, i, is the rate that corresponds to the actual interest period. The effective interest rate is obtained by dividing the nominal interest rate by m, the number of interest periods per year: Example 4. What are the nominal and effective interest rates?

Moreover, the number of years, n, must be replaced by the total number of interest periods, mn. Example 4. How much money must the engineer repay each month? This problem can be solved by direct application of 2. Again applying 2.

One way to handle problems of this type is to determine the effective interest rate for the given interest period, and then treat each payment separately. T h e FIP factors can b e obtained from either 2. This effective interest rate can be determined as where a represents the number of interest periods per payment period and r is the nominal interest rate for that payment period.

This table may be used in place of 4. Such payments do not earn any interest during that interest period. In other words, interest is earned only by those payments that have been deposited or invested for the entire interest period. Situations of this type can be treated in the following manner: I.

Amor G. Bose, on MIT professor and chairman of speaker monufocturer Bose Corporation, defied the conventional wisdom of consumer electronics. Bose grew up poor in Philadelphia, where his father emigrated from lndio ond worked as on importer until he lost the business during World War II.

While his mother worked as o teacher, Dr. Bose set up o rodio-repair business ot the age of 14 in the basement; this business soon becarne the family's main support. He entered MI'I' and never left, earning a doctoral degree in ,

As o reword h finishing his reseaah, he decided to download himself o stereo system. Although he hod done his homework on the hifils engineering rpecihcotions, he was profoundly disappointed with his purchose Mulling over why something thot looked good on paper sounded bod in the open air, Dr. Bore concluded thot the onswer inB volved directionality. Therefore, Dr. Bose began tinkering to develop a home speaker thot could reproduce the concert experience. Bosed on the principle of reflected sound, the speaker bounces sounds off wolls and ceilings in order to surround the listener.

In , Dr. Bose pioneered the use of "reflected sound" in A decode later, he convinced General Motors Corporation to let his company design a high-end speaker system for the Codilloc Seville, helping to push car stereos beyond the mediocre. Recently, he introduced o compact rodio system thot con produce rich boss sound. Amar G. Bose was inducted into the Radio Hall of Fome in In , his success vaulted Dr. Bose got motivated to invent a directional home speaker and eventually transformed his invention into a multimilliondollar business is not an uncommon one in today's market.

Companies such as Dell, Microsoft, and Yahoo all produce computer-related products and have market values of several billion dollars.

These companies were all started by highly motivated young college students just like Dr. Another thing that is common to all these successful businesses is that they have capable and imaginative engineers who constantly generate good ideas for capital investment, execute them well, and obtain good results. You might wonder about what kind of role these engineers play in making such business decisions.

In other words, what specific tasks are assigned to these engineers, and what tools and techniques are available to them for making such capitalinvestment decisions?

In this book, we will consider many investment situations, personal as well as business. The focus, however, will be on evaluating engineering projects on the basis of economic desirability and in light of the investment situations that face a typical firm. We make most of them automatically, without consciously recognizing that we are actually following some sort of a logical decision flowchart.

Rational decision making can be a complex process that contains a number of essential elements.

Instead of presenting some rigid rational decision making processes, we will provide examples of how two engineering students approached their financial as well as engineering design problems. By reviewing these examples, we will be able to identify some essential elements common to any rational decision-making process.

The first example illustrates how a student named Monica narrowed down her choice between two competing alternatives when downloading an automobile. The second example illustrates how a typical class-project idea evolves and how a student named Sonya approached the design problem by following a logical method of analysis.

For Monica Russell, a senior at the University of Washington, the future holds a new car.

Her Honda Civic has clocked almost But how to do it-download or lease? In either case, "car payments would be difficult," said the engineering major, who works as a part-time cashier at a local supermarket. For Monica, leasing would provide the warranty protection she wants.

On the other hand, she would be limited to driving only a specified number of miles, usually 12, per year, after which she would have to pay 20 cents or more per mile. Monica is well aware that choosing the right vehicle is an important decision.

Yet, at this point, Monica is unsure of the implications of downloading versus leasing. Monica decided to survey the local papers and the Internet for the latest lease programs. Of the cars that were within her budget, the Saturn ION. Monica finally decided to visit the dealers' lots to see how both models looked and to take them for a test drive.

Both cars gave her very satisfactory driving experiences. Monica thought that it would be important to examine carefully many technical as well as safety features of the automobiles.

After her examination, it seemed that both models were virtually identical in terms of reliability. Through her research, Monica also learned that there are two types of leases: open end and closed end. The most popular by far was closed end, because open-end leases expose the consumer to possible higher payments at the end of the lease if the car depreciates faster than 1 -1 The Rational Decision-Making Process 5 expected.

If Monica were to take a closed-end lease, she could just return the vehicle at the end of the lease and "walk away" to lease or download another vehicle. However, she would have to pay for extra mileage or excess wear or damage.

She thought that since she would not be a "pedal-to-the-metal driver," lease-end charges would not be problem for her. To get the best financial deal, Monica obtained some financial facts from both dealers on their best offers. With each offer, she added all the costs of leasing, from the down payment to the disposition fee due at the end of the lease.

This sum would determine the total cost of leasing that vehicle, not counting routine items such as oil changes and other maintenance.

## Fundamentals of Engineering Economics

See Table 1. It appeared that, with the Saturn ION.

Manufacturer's suggested retail price MSRP 2. Lease length 3.

Allowed mileage 4. Monthly lease payment 5. Mileage surcharge over 36, miles 6.

If she would own the car for as long as she would lease it. If finances were her only consideration, her choice would depend on the specifics of the deal. But beyond finances, she would need to consider the positives and negatives of her personal preferences. By leasing, she would never experience thc "joy" of the last payment-but she would have a new car every three years. Now we may revisit the decision-making process in a more structured way.

The analysis can be thought of as including the six steps as summarized in Figure 1. These cix steps are known as the "rational decision-making process.

Some decision problems may not require much of our time and effort. Quite often, we even make our decisions solely on emotional reasons. However, for any conlplex economic decision problem, a structured decision framework such as that outlined here proves to be worthwhile. The idea of design and development is what most distinguishes engineering from science, the latter being concerned principally with understanding the world as it is.

Decisions made during the engineering design phase of a product's development determine the majority of the costs of manufacturing that product. As design and manufacturing processes become more complex. In this section, we provide an 1.

Recognizc a decision problem 2. Define the goals o r objectives 3. Collect all the relevant information 4. Identify a set of feasible decision alternatives 5. Select the decision criterion to use 6. Select the best alternative Logical steps to follow in a car-leasing decision f he Rational Decision-Making Process 7 example of how engineers get from "thought" to "thing. Throughout history, necessity has been the mother of invention.

## Chemical Engineering Economics

So, several years ago. Sonya Talton, an electrical engineering student at Johns Hopkins University. Picture this: It's one of those sweltering, hazy August afternoons. Your friends have finally gotten their acts together for a picnic at the lake.Personally, I wish to thank the following individuals for their additional input to the new edition: Michael D. A decode later, he convinced General Motors Corporation to let his company design a high-end speaker system for the Codilloc Seville, helping to push car stereos beyond the mediocre.

Now we may revisit the decision-making process in a more structured way. Through her research, Monica also learned that there are two types of leases: open end and closed end. The first thing Sonya needed to do was to establish some goals for the project: Get the soda as cold as possible in the shortest possible time.

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