INDE 6365 Engineering Economy II
Spring 2009
MW 1:00 – 2:30 pm
Room W122
Instructor
Hamid R. Parsaei, Ph.D., P.E.
Professor and Chairman
Dept. of Industrial Engineering
Phone: 713-743-6041
Fax: 713-743-4190
Email: parsaei@uh.edu
Teaching Assistant
Elias Keedy
Room: S350
Phone: 713-743-4179
Email: ekeedy@mail.uh.edu
The course is intended to provide students with advanced tools necessary to evaluate, measure, and compare capital investments. The course also demonstrates how mathematical techniques, both deterministic and probabilistic, can be employed by decision makers in developing a more objective and sound engineering decision.
Course Outcomes:
Upon completion of this course, students should be able to understand the concept of the time value of money and equivalence. They will also be able to generate components of the annual cash flow including, gross income, costs of goods sold, interest and principal payments, capital recovery methods, borrowed money, and working capital. Other outcomes of the course include an in-depth knowledge of single project evaluation methods including, net present value analysis, internal rate of return, payback period, and benefit cost ration. Students will also be able to effectively utilize breakeven points, multiple project evaluation/capital budgeting, and cost comparisons concepts to determine the economic desirability of any industrial projects.
Textbook:
Chan S. Park, “Contemporary Engineering Economics”, 4th Edition, Prentice Hall, Publishing, 2007, ISBN: 0-13-187628-7
Topics Covered in this course include:
Engineering Economic Decisions
Roles of Engineers in Business, What Makes the Engineering Economic Decision Difficult?, Economic Decisions vs. Design Decisions, Common Types of Strategic Engineering Economic Decisions.
Understanding Financial Statements
Accounting, Financial Status of Business, Using Ratios to Make Business Decision.
INDE 6365 Engineering Economy II
Spring 2009
Page 2
Interest Rates and Economic Equivalence
Interest, Economic Equivalence, Development of Interest Formulas, Unconventional Equivalence Calculations.
Understanding Money and Its Management
Nominal and Effective Interest Rates, Equivalence Calculations with Effective Interest Rates, Equivalence Calculations with Continuous Payments, Changing Interest Rates, Debt Management, Investing Assets
Present Worth Analysis
Describing Project Cash Flows, Initial Project Screening Method, Discounted Cash Flow Analysis, Variations of Present Worth Analysis, Comparing Mutually Exclusive Alternatives.
Annual Equivalent-Worth Analysis
Annual Equivalent-Worth Criterion, Capital Costs vs. Operating Costs, Applying Annul-Worth Analysis, Life Cycle Cost Analysis.
Rate of Return Analysis
Rate of Return, Methods for Finding the Rate of return, Internal rate of Return Criterion, Mutually Exclusive Alternatives
Cost Concepts Relevant to Decision Making
General Cost Terms, Classifying Costs for Financial Statements, Cost Classification for Predicting Cost Behavior, Future Costs for Business Decision, Estimating Profit From Production.
Depreciation and Corporate Taxes
Asset Depreciation, Factors Inherent in Asset Deprecation, Book Deprecation Methods, Tax Deprecation Methods, Depletion, Repairs or Improvements Made to Depreciable Assets, Corporate Taxes, Tax Treatment of Gains and Losses on Depreciable Assets, Income Tax Rate to be Used in Economic Analysis, The Need for cash Flow in Engineering Economic Analysis.
Developing Project Cash Flows
Cost-Benefit Estimation for Engineering Projects, Incremental Cash Flows, Developing Cash Flow Statements, Generalized Cash Flow Approach.
Inflation and Its Impact on Project Cash Flows
Meaning and Measure of Inflation, Equivalence Calculations Under Inflation, Effects of Inflation on Project Cash Flows, Rate of Return Analysis Under Inflation
INDE 6365 Engineering Economy II
Spring 2009
Page 3
Project Risk and Uncertainty
Origins of Project Risk, Methods of Describing Project Risk, Probability Concepts for Investment Decisions, Probability Distribution of NPW, Risk Simulation, Decision Tree and Sequential Investment Decisions.
Course grade:
First Exam 100 Points (February 23, 2009)
Second Exam 100 Points (March 30, 2009)
Final Exam 100 Points (TBD)
Homework 100 Points
Unannounced quizzes 100 Points
