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MGTS 301 Engineering ECONOMY

Hari Charan Ghimire

Department of Mechanical EngineeringSchool of Engineering

Course Objectives:

This course covers the basic topics of engineering economic analysis

upon which the practice of financial project analysis is built and toolsto evaluate engineering projects. Engineering economy is the heart of

decision-making. This will eventually provide students a soundunderstanding of the principles, basic concepts and methodology ofengineering economy and help them develop proficiency with these

methods and with the process for making rational decisions regardingsituations they are likely to encounter in professional practice.

Lecture Arrangements:

For CE + CS

Tuesday 9.00-11.00 hrs

Wednesday 9.00-11.00 hrs

For EE

Tuesday 2.00-4.00 hrsFriday 10.00-12.00 hrs

Course Materials:

Students are strongly advised and encouraged to refer the textbooksand other reference materials from university library and web pages.

Reference materials for the lectures and discussions shall be takenfrom the following book and web site.

WG Sullivan et al, Engineering Economy, PEA 2001URL: www.prenhall.com/sullivan_engineeringChan S. Park, Contemporary Engineering Economics

URL: www.prenhall.com/park

http://www.prenhall.com/sullivan_engineeringhttp://www.prenhall.com/parkhttp://www.prenhall.com/parkhttp://www.prenhall.com/sullivan_engineering

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Assessments:

Students will be evaluated continuously based upon their

performances in the classes, quizzes, case studies and otherwoks/assignments allocated during the course work. Class tests will

carry less than 50%; case studies and assignments will carry more

than 40%, and class activities/participation/attendance will carry 10%of the total internal marks. Students are required to do the numericalproblems (assignment) in Excel andas well as in the hard copy. Some

of the tests will be also taken in the computer. At the end of thesemester, the students will be required to select a live project and the

economic analysis of the project is required to be done. As per the KUlaw, students maintaining less than 75% attendance will not be eligible

to appear in the end-semester examination.

Lesson Plan:

The course has been divided in to different modules. Approximately 50lectures will be taken for completing the course.

Module 1Introduction to Engineering Economy

Origin, principles, engineering economy and design process,engineering economic analysis procedure, accounting and engineeringeconomic studies , types of organization

Module 2Method of raising capital, Cost Concepts and Design EconomicsIntroduction, cost estimating and cost terminology, the general

economic environment, break-even point, cost-driven designoptimization

Module 3

Money-Time Relationships and EquivalenceIntroduction, simple and compound interests, Equivalence-concept,

cash flow diagrams, simple interest formula for present, future andannual equivalents

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Module 4Applications of Money-Time Relationships

MARR, PW, FW and AW method, IRR and ERR method, payback periodmethod

Module 5Comparing Alternatives

Useful lives equal to study period, useful lives are different amongalternatives, capitalized worth method, mutually exclusive

combinations of projects

Module 6Depreciation and Income Taxes Introduction, depreciation concepts

and terminology, classical depreciation Methods.Taxation in Nepal-Taxation laws, corporate tax structure, individual tax structure anddepreciation rates in taxes

Module 7Cost Estimation Techniques Integrated approach to develop the netcash flows, parametric cost estimating, cost estimation in the design

process, value engineering

Module 8Price Changes and Exchange Rates Consumer price index and theproducer price index, foreign exchange rates, price inflation or

deflation, project analysis with price changes

Module 9Replacement Analysis Reasons and factors for replacement studies,economic life

Module 10Dealing with Uncertainty

Risk and uncertainty, sensitivity analysis, risk adjusted MARR

NOTE: FOR THE NUMERICAL PORTION, THE WAYS OF SOLVING PROBLEMS

IN EXCEL WILL ALSO BE DISCUSSED IN THE CLASS.

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Module 1 introduces the subject of engineering economy, discusses itscritical role in engineering design and analysis and discusses the basic

principles of the subject. It also discusses about the different types oforganization.

Module 2 describes some of the basic cost terminology and conceptsthat are used in this course and illustrates how they should be used in

engineering analysis and decision-making. It also describes about the

ways of raising of funds.

Module 3 discusses the return to capital in the form of interest (orprofit) and illustrates how basic calculations are made with respect to

time value of capital in engineering economy studies.

Module 4 illustrates various basic methods for making engineering

economy studies considering the time value of money and describesbriefly underlying assumptions and interrelationships among these

methods.

Module 5 develops and demonstrates methodology for the economicanalysis and comparison of mutually exclusive design alternatives for

an engineering project.

Module 6 discusses some of the concepts and mechanics ofdepreciation and depletion and describes their role in after-tax

analysis.

Module 7 describes an integrated approach used to develop cash flowsfor the alternatives being analyzed in a study and delineates and

illustrates selected techniques that will be useful in making suchestimates.

Module 8 introduces a methodology for dealing with price changescaused by inflation and deflation and develops and illustrates proper

techniques to account for these effects in engineering economicanalysis.

Module 9 discusses the considerations involved in replacement studies

and addresses the key question of whether an asset should be keptone or more years or immediately replaced with the best available

challenger.

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Module 10 presents and discusses methods that are useful in analyzingthe economic consequences of engineering projects where uncertainty

exists.