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Performing an Engineering Economic Study

Performing an Engineering Economic Study

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Published by ClassOf1.com
An engineering economy study involves many elements: problem identification, definition of the objective, cash flow estimation, financial analysis, and decision making. Implementing a structured procedure is the best approach to select the best solution to the problem.
An engineering economy study involves many elements: problem identification, definition of the objective, cash flow estimation, financial analysis, and decision making. Implementing a structured procedure is the best approach to select the best solution to the problem.

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Published by: ClassOf1.com on Jun 12, 2013
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Economics
LEARN TO EXCEL
Homework Help
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Sub: Economics Topic: Engineering economics
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
Performing an Engineering Economic Study
 
An engineering economy study involves many elements: problem identification, definition of theobjective, cash flow estimation, financial analysis, and decision making. Implementing a structuredprocedure is the best approach to select the best solution to the problem.
 Alternatives
These are stand-alone descriptions of viable solutions to problems that can meet theobjectives. Words, pictures, graphs, equipment and service descriptions, simulations, etc. define eachalternative. The best estimates for parameters are also part of the alternative. Some parametersinclude equipment first cost, expected life, salvage value (estimated trade-in, resale, or market value),and annual operating cost (AOC), which can also be termed
maintenance and operating
(M&O)
cost,
and subcontract cost for specific services. If changes in income (revenue) mayoccur, this parameter must be estimated. Detailing all viable alternatives at this stage is crucial. Forexample, if two alternatives are described and analyzed, one will likely be selected andimplementation initiated. If a third, more attractive method that was available is later recognized, awrong decision was made.
Cash Flows
All cash flows are estimated for each alternative. Since theseare future expenditures and revenues, the results usually prove to be inaccurate when an alternativeis actually in place and operating. When cash flow estimates for specific parameters are expected tovary significantly from a
 point estimate
made now, risk and sensitivity analyses are needed toimprove the chances of selecting the best alternative. Sizable variation is usually expected inestimates of revenues, AOC, salvage values, and subcontractor costs.
Engineering Economy  Analysis
The techniques and computations that you will learn and use throughout this text utilize thecash flow estimates, time value of money, and a selected measure of worth. The result of the analysiswill be one or more numerical values; this can be in one of several terms, such as money, an interestrate, number of years, or a probability. In the end, a selected measure of worth mentioned in theprevious section will be used to select the best alternative. Before an economic analysis technique is
 
 
Sub: Economics Topic: Engineering economics
*
The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not forsubmitting the same in lieu of their academic submissions for grades.
applied to the cash flows, some decisions about what to include in the analysis must be made. Twoimportant possibilities are taxes and inflation.Federal, state or provincial, county, and city taxes will impact the costs of every alternative. An after-tax analysis includes some additional estimates and methods compared to a before-tax analysis. If taxes and inflation are expected to impact all alternatives equally, they may be disregarded in theanalysis. However, if the size of these projected costs is important, taxes and inflation should beconsidered. Also, if the impact of inflation over time is important to the decision, an additional set of computations must be added to the analysis

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