ESC 282 – Engineering Economy

ESC 282 – Engineering Economy – Fall 2009

Cleveland State University, Fenn College of Engineering

Objective. Engineering Economy discusses the behavior of individuals and businesses with respect to society and government. It studies the cultural and regulatory environment in which these entities exist, and explains the motivation and rationale used by these entities in their decision-making processes. Further, Engineering Economy discusses how financial decisions made in this environment can affect these entities and alter the environment in which they operate. Students taking Engineering Economy will understand criteria for decision-making beyond the technical merit of a project, including the financial, legal, ethical, and social consequences.

Catalog Data. Course focuses on the coupling of technical analysis and economic feasibility to determine the best course of action among alternatives competing for scarce resources in both public and private sector projects. Studies the principles, concepts, and methodology of the time value of money as applied to governmental, industrial, and personal economic decisions. Topics include benefit-cost analysis, inflation, depreciation, taxes, tax abatements, risk and sensitivity analysis, and the comparison of alternatives. Discussion includes the ethical and social responsibilities of engineers as they apply to project decisions affecting job creation and loss, personnel placement, and capital expenditure.

Instructor. Dr. Brian Thomas. 227 SH, (216) 523-7251. Email: m.thomas84@csuohio.edu.

Outcomes. The ABET outcomes for this course are:

(a) Ability to apply principles of mathematics, science & engineering to problems and situations;

(b) Ability to collect and analyze experimental data;

(f) Understanding of professional and ethical responsibilities, and;

(h) Understanding of global/social impact of engineering solutions and contemporary issues.

Upon completion of this course the students should understand and be able to apply the following concepts in their professional practice and personal lives:

principles of engineering economy, including time-money relationships;
a basis for development, comparison, and selection of economic alternatives;
depreciation methodologies, and;
the Cost-Benefit-Ratio methodology.

Course Text (required). Engineering Economy, Fourteenth Edition, by Sullivan, Wicks, and Wuxhoj (ISBN 0-13-614297-3).

Email. Please start the subject line of class-related email with “ESC282”.

Attendance & Late Policy. Attendance is not mandatory, but highly recommended. It is the student’s responsibility to obtain lecture notes for missed classes. Homework assignments are to be turned at the beginning of class. Late assignments will be graded at the instructor’s discretion. Students will not be allowed to take missed quizzes or exams, except at the discretion of the instructor. If you know of an absence in advance, inform the instructor as early as possible to make alternate arrangements for graded work.

Code of Conduct. Students may collaborate on homework and project assignments; however, the final product must reflect the efforts of the student(s) whose name appears on the work. Plagiarism will not be accepted. Plagiarism includes, but is not limited to, copying the text word-for-word in answering problems.

Quizzes and exams are strictly individual efforts. During quizzes and exams, only test papers, pens and pencils, and approved calculators are allowed on table tops. Other materials may be allowed at the instructor’s discretion. Wireless devices and PDA’s are strictly prohibited.

Class Schedule (subject to change).

Week	Chapters	Topic
1	1	Introduction; using Excel
2	2	Cost concepts and design economics
3	3	Cost estimation and models
4	4	Money-time relationships
5	4	Money-time relationships
6	-	Review, MIDTERM 1
7	5	Applications of money-time relationships
8	6	Comparing alternatives
9	7	Depreciation
10	7	Corporate income tax
11	-	Review, MIDTERM 2
12	8	Price changes and exchange rates
13	9	Replacement analysis
14	10	Evaluating projects with benefit–cost-ratio method
15	11	Breakeven and sensitivity analysis
		FINAL EXAM

Grading. Final grades will be based on:

Midterm exams 60% (30% each).

Final exam 40%.

Open-source learing as appropriate.

Homework and Quizzes. Homework will be assigned on a regular basis to help you assess your understanding of the course material and prepare you for the exams. Submitting homework is optional, but recommended. Homework will be scored according to the following scale:

4. Student displays an excellent understanding of the concept; execution is good; submission is professional and organized.

3. Student displays a good understanding of the concept; some math errors in the execution.

2. Student displays a partial understanding of the concept; execution has significant errors and/or is unprofessional in its presentation.

1. Student does not communicate an understanding of the concept.

The instructor may occasionally give quizzes in class. Scores will not count towards your grade, but will let you assess your understanding of class material.

Open-source learning. Education is not limited to the classroom. Additional class credit may be received if you can demonstrate your having done “open-source” learning activities during the semester, and relate it to course material and the engineering profession. Such activities include:

Reading a book on economics. Suggestions include:

What’s Math Got to Do with It? Jo Boaler.
Why Geography Matters, Harm de Blij.
A Concise Economic History of the World, Rondo Cameron.
Collapse, Jared Diamond.
Guns, Germs, and Steel, Jared Diamond.
The Way to Wealth, Benjamin Franklin.
Weapons of Mass Instruction, John Taylor Gatto.
Rich Dad, Poor Dad, Robert Kiyosaki.
The Wealth of Nations, Adam Smith.
Basic Economics, Thomas Sowell.

Writing a commentary on one of the larger policy issues being discussed nationally (TARP, Cap and Trade, Universal Health Care) or locally (Medical Mart). Discuss the potential impact on industry and the engineering profession. Include arguments from opposing viewpoints.
Starting a business.
Writing and submitting a proposal for external funding of an undergraduate project.
Other outside accomplishments significant to the course.

Skills, Knowledge, and Attitudes Inventory. The following list is provided to let you assess your understanding of ESC 282 topics.

SKA	Ch.	Item
K	1	Seven +1 principles of engineering economy
S	N/A	Using equations in a speadsheet
A	N/A	Formatting a spreadsheet for printing
A	N/A	Formatting a chart for printing
K	2	Cost terminologies
A	2	Dealing with sunk costs
K	2	Project life cycle
A	2	Relationships between cost, demand
S	2	Finding maximum profit given cost and revenue functions
S	2	Finding breakeven point(s)
S	3	Developing a work breakdown structure
S	3	Using indices to estimate cost
S	3	Using parametric models to estimate cost
A	3	Limits of models and indices
A	4	Future cash flows not worth as much as present cash flows
S	4	Calculating compound interest
K	4	Equation for compound interest
S	4	Drawing cash flow diagrams
A	4	Equivalence of present, future values
S	4	Equivalence - annuities
S	4	Equivalence - arithmetic gradients
S	4	Equivalence - geometric gradients
S	4	Equivalence - deferred annuities
S	4	Using equations to solve TVM problems
S	4	Using tables to solve TVM problems
S	N/A	Using your calculator to solve TVM problems
S	N/A	Using Excel to solve TVM problems
S	4	Calculating nominal and effective interest rates
K	5	What is the MARR?
S	5	Evaluating projects on PW, AW, FW
S	5	Calculating the IRR
S	5	Calculating the ERR
S	5	Calculating the simple payback period
S	5	Calculating the compound payback period
A	6	Using incremental analysis to compare ME alternatives
S	6	Comparing projects on PW, AW, FW
S	6	Comparing projects using rate-of-return methods
S	6	Comparing projects with equal lives
S	6	Comparing projects with unequal lives - repeatability
S	6	Comparing projects with unequal lives - cotermination
S	6	Comparing projects with unequal lives - other methods
A	7	What is depreciation?
K	7	What is depreciable property?
K	7	Depreciation terms and definintions
S	7	Straight-line depreciation
S	7	Units-of-production depreciation
S	7	Declining-balance depreciation
S	7	DB-SL depreciation
S	7	MACRS depreciation definitions
S	7	MACRS - GDS depreciation
S	7	MACRS - ADS depreciation
K	N/A	Types of corporations
A	7	Corporate taxes
K	7	Types of taxes
S	7	Calculating corporate income taxes
K	7	Marginal, effective tax rates
S	7	Calculating capital gains
S	7	Calculating after-tax cash flow for the enterprise
S	7	Calculating after-tax cash flow for a project
S	7	Evaluating projects on the basis of ATCF
K	8	Inflation - terms and concepts
K	8	Using the CPI as a measure of inflation
S	8	Using inflation in engineering economy
S	8	Inflation calculations
K	8	Currency exchange - terms and concepts
S	8	Currency exchange calculations
A	9	Economic reasons for asset replacement
K	9	Replacement analysis - terms and definitions
S	9	Determining the economic life of a new asset
S	9	Determining the economic life of an existing asset
A	10	Public project perspective
K	10	Public projects - terms and definitions
A	10	Challenges with public projects
S	10	Benefit-Cost Ratio method
S	10	Incremental BCR method
A	11	Handling uncertainty in engineering economy
S	11	Breakeven analysis
S	11	Sensitivity analysis
S	11	Spider plots
S	11	O-ML-P analysis