Engineering Economy

ASSIGNMENT (1)
Due date: May 26.2023 / 11:59 P.M

Under the principles of engineering economy, the 7-step systematic principles of

engineering economic analysis technique are given as: i. Identify the investment
alternatives.
ii. Focus on the differences.
ill. Use consistent viewpoint iv. Use common unit of
measure. vi. Consider all relevant criteria. vii. Make
uncertainty explicit.
viii. Revisit your decision
The management team of a small furniture manufacturing company is under pressure
to increase profitability in order to get a much needed loan from the bank to purchase
a more modern pattern cutting machine. One proposed solution is to sell waste wood
chips and shavings to a local charcoal manufacturer instead of using them to fuel space
heaters for the company's office and factory areas.

(a) Define the company's problem and reformulate the problem using the 7-step
systematicprinciples of engineering economics
(b) Develop at least one-potential alternative for your reformulated problems in part (a).
(a) The company's problem is how to increase profitability in order to obtain a loan to purchase a modern pattern cutting machine.
One proposed solution is to sell waste wood chips and shavings to a local charcoal manufacturer instead of using them to fuel space
heaters for the company's office and factory areas.
Reformulated problem using the 7-step systematic principles of engineering economics:
i. Identify the investment alternatives: The investment alternatives are to continue using the waste wood chips and
shavings to fuel space heaters or to sell them to a local charcoal manufacturer.
ii. Focus on the differences: The differences between the two alternatives are the revenue generated from selling the
waste wood chips and shavings to the charcoal manufacturer versus the cost savings from using them to fuel space heaters.
iii. Use consistent viewpoint: The viewpoint used will be that of the company's management team, who are interested in
increasing profitability.
iv. Use common unit of measure: The common unit of measure will be monetary value, specifically the net present value
(NPV) of each alternative.
v. Consider all relevant criteria: Relevant criteria to consider include the revenue from selling the waste wood chips and
shavings, the cost savings from using them to fuel space heaters, and any additional costs associated with selling to the charcoal
manufacturer.
vi. Make uncertainty explicit: Uncertainty factors to consider include the future market demand and price for waste wood
chips and shavings and the future cost of alternative heating sources.
vii. Revisit your decision: After analyzing the alternatives and making a decision, it is important to revisit the decision
periodically to ensure it remains the best option for the company.
(b) One potential alternative for the company is to invest in a more energy-efficient heating system that does not require the use of
waste wood chips and shavings. This alternative would involve an initial investment in the new heating system, but could potentially
result in long-term cost savings and a reduction in waste material that could be sold to the charcoal manufacturer. Another alternative
could be to explore other revenue-generating opportunities, such as expanding the company's product line or increasing marketing
efforts to increase sales.