An-Najah National University

Faculty of Graduate Studies

Engineering  Management

Engineering Economic Analysis and Finance

Second Semester 2009/2010

 

Course Syllabus

Instructor: Nabil Al-Dmaidi

 

Description

Engineering Economic Analysis .  Financial accounting principles and cost systems, interpretation and use of accounting reports and supplemental information for engineering economic analyses, consideration of cost-volume-profit analyses, use of discounted cash flow techniques, flexible budgeting, transfer pricing, and capital budgeting.

 

This three-credit course covers discounted cash flow methods for analyzing and evaluating proposed projects and investments.  These basic skills are useful in all areas of engineering, as well as in many other areas of life (including personal financial decisions).  The course begins with fundamental methods for identifying what is involved in an investment decision, what is relevant, and what is not, and the financial mathematics needed to deal with the relevant data.  Then we will cover the ways in which investment decisions are measured (e.g., present worth, internal rate of return, and equivalent cash flow), as well as the effect of income taxes.  We also look at what is needed to adapt the general methods to some types of commonly occurring situations (such as retirement/replacement decisions and capital budgeting), and at the effects of financing, inflation, and uncertainty on the analyses.

 

Course Objectives

This course covers the basics of economic analysis from an engineering perspective. Because cost is such an important component in decision-making, various techniques for comparing alternatives on an economic basis are presented. Other topics include depreciation, inflation considerations, and cost estimating , time value of money; analysis of single and multiple investments; comparison of alternatives; capital recovery and tax implications; public sector analysis and break-even concepts. After successfully completing this course, you should be able to:

• Correctly apply discounted cash-flow analysis to evaluate proposed capital investments.
• Recognize, formulate, and analyze cash-flow models.
• Explain the results of your models to managers and other non-specialist decision makers.

 

Distribution of information

You are expected to attend all classes.  You are responsible for assignments or policies that are announced in class or handed out in class, whether or not you are in class to receive the information.  You are also responsible for any material distributed electronically by email or via the web.

 

Expectations for civility and academic conduct

I will make every effort to start class promptly at 2.  In return, I would ask that you make every effort to arrive enough ahead of time to get settled before then, and stop talking at 2. so class can start on time. 

 

It is important that all work you hand in represents your own effort.  Cheating, copying from a fellow student, or plagiarizing from the web or another published source is not acceptable, and can result in your grade being reduced, or even in your failing the course. I am committed to creating a dynamic, diverse, and welcoming learning environment for all of you.  Disrespectful behaviors or comments addressed towards any group or individual (regardless of race, ethnicity, sexuality, gender, religion, ability, or any other factor) interfere with the learning environment, and are not acceptable in this class.  If you feel that you have been treated disrespectfully in this class, either by the course staff or by a classmate, please feel free to let me know about the problem.  

Student Questions

Please let us know how we can help you.  I would encourage you to ask questions in class, attend office hours, set up individual appointments  From your point of view, getting into the habit of asking questions:

 

Makes sure that your questions get answered

Helps to prepare you for life-long learning

Encourages you to think conceptually about the material, instead of “plug and chug”

 

In fact, research in human cognition demonstrates that if you take the time to reflect on your learning, your performance could improve by 30-40%!  From our point of view, hearing your questions allows us to:

 

Provide individual feedback

See whether you have a coherent picture of the material

Identify typical misconceptions and mistakes, so they can be corrected

 

There is nothing wrong with asking “stupid” questions (e.g., asking for clarification of basic ideas, or questions about things that you should have learned before this class).  The whole point is to get such areas of confusion cleared up as soon as possible, so that they do not continue to hold you back in learning the material. 

Course materials

Required text

L. T. Blank and A. Tarquin, Engineering Economy, Sixth Edition, McGraw-Hill, 2005 

 

Web Site Addresses:

1. http://highered.mcgraw-hill.com/sites/0072432349/

Online Learning Center: Maintained by the Publisher and contains relevant material.

URL: http://www.mhhe.com/blank6 Username: blankstudent Password: blank6e

 

References:

1. Collier, Courtland A. and Glagola, Charles R., Enginering Economic and

Cost Analysis, (Menlo Park: Addison Wesley Longman, Inc., 1998, Third Edition). [TA177.4 .C65 1998]

2. Sullivan, William G., Wicks, Elin M., and James T. Luxhoj, Engineering Economy, (Upper Saddle River: Prentice-Hall, 2003, Twelfth Edition). [TA177.4 .E539 2003]

3-Newnan, Donald G., Jerome P. Lavelle, and Ted G. Eschenbach, Engineering Economic Analysis, (New York: Oxford University Press, 2009, Tenth Edition).

4-W. J. Fabrycky, G. J. Thuesen, and D. Verma, Economic Decision Analysis, Third Edition, Prentice Hall, 1998.

5-E. L. Grant, W. G. Ireson, and R. S. Leavenworth, Principles of Engineering Economy, Eighth Edition, Wiley, 1990.

6-J. A. White, K. E. Case, D. B. Pratt, and M. H. Agee, Principles of Engineering Economic Analysis, Fourth Edition, Wiley, 1998.

7-G. J. Thuesen andW. J. Fabrycky, Engineering Economy, Prentice-Hall

8-J. C. Sprague and J. D. Whittaker, Economic Analysis for Engineers and Managers, Prentice-Hall

References on writing

In some of the assignments for this course, you will be required to analyze a situation and then explain it and/or make recommendations to a user who is not trained in the subject matter of the course.  This means that you have to be able to write clearly and concisely about technical subjects.  Some of you may not have had much experience writing about technical subjects. 

Computing

In this course, you will have to use software, including the Excel spreadsheet program.  Computers with various programs accessible by menu are available for your use in the laboratories . You will need to start using Excel early in the course.  

Graded Work

Homework will be assigned in most weeks as a means to help you understand the concepts and to give you practice in applying them.  It will generally be handed out on a Wednesday, due the following Wednesday (seven days later), and graded and returned to you by the next Wednesday.  If you do not turn in your homework in class on Wednesday, you should put it in the drop box near the mailboxes outside the department office in the Mechanical Engineering Building.

 

You are encouraged to join with other students in discussing the course work, including homework.  However, you must prepare the work that you hand in by yourself.  It is fine to work with others in deciding how to do something and in working out the solution, but you have to write it up on your own.

 

 

Class Policies:

1. Everyone must individually turn-in their home works. However, you are permitted to work

with at most one class member on your homework and acknowledge their participation on

the homework.

2. Homework assignments will be collected at the start of class on the due date and will be

considered late after start of the class. Late submissions will not be accepted for grading.

Contact the instructor in advance if you have a valid reason for not being able to meet the

deadline, or if extreme circumstances force the delay.

3. Quizzes will be short (10-15mins), in-class and unannounced. No make-ups will be given

for missed quizzes.

4. All exams will be comprehensive up to a specified topic although emphasis will be on newer

material. No make-up examinations will be given unless prior arrangements have been

made with the instructor or a written authorized excuse is provided.

5. You are responsible for any material covered, announcements made and any homework

assigned in a class even if you have an excused absence from that class.

6. No disagreement on a score received on any graded material will be entertained a week after

the date it was returned.

 

Tentative Course Schedule

In the following schedule, assignments refer to chapters in the textbook unless otherwise indicated.  You are expected to have done these assigned readings before the corresponding lecture.  Your teaching assistants may also give you additional assignments to prepare you for discussion section, and to use the spreadsheet software that you will need for the homework.

Slides               Topic                                                                           Assignment

 1.                    Introduction                                                                 Chapter 1

 2.                    Fixed/variable cost, average/marginal cost, sunk cost  Handout (also

                                                                                                            Fabrycky, Chapter 3.3;

                                                                                                            White, Chapter 8)

 3.                    Financial mathematics                                                 Chapter 2

 4.                    Compounding                                                             Chapters 2 and 4

 5.                    In-class quiz, present worth                                         Chapter 5        

 6.                    Annual equivalent cash flow                                       Chapter 6

 7.                    Internal rate of return—single alternative                     Chapter 7

 8.                    Internal rate of return—multiple alternatives               Chapter 8

 9.                    Benefit/cost ratios                                                        Chapter 9

10.                   Payback period and breakeven analysis                      Chapters 5.6 and 13

11.                   IN-CLASS EXAMINATION (tentative)                    Chapters 1-9

12.                   Minimum acceptable rate of return                              Chapter 10

13.                   Retirement/replacement decisions                                Chapter 11

14.                   Capital budgeting                                                         Chapter 12

15.                   Accounting and depreciation                                       Chapter 16

16.                   Accounting and depreciation                                       Chapter 16

17.                   Review, debate on tax deductions for depreciation

18.                   IN-CLASS EXAMINATION                                     Chapters 10-13                      

19.                   Income taxes                                                               Chapter 17

20.                   Income taxes (PROJECT HANDED OUT!)                 Chapter 17

21.                   Bonds                                                                          Fabrycky, Chapter 9;

                                                                                                            Grant, Chapter 12

22.                   Financing                                                                     Grant, Chapter 12

23.                   Inflation                                                                       Chapter 14

24.                   Inflation, financing, and income taxes                         White, Chapter 6.19

25.                   Sensitivity analysis                                                      Chapter 18

26.                   Uncertainty analysis                                                    Chapters 18 and 19

27.                   Real options theory (GUEST LECTURE)

28.                   IN-CLASS EXAMINATION (tentative)                                   Chapters 1-19

31.                   Multi-attribute utility theory(PROJECT DUE!)

 

Grading systems:

Report Assignments and Quizzes                     15%

Mid-term Exams 2 No.                                                20%  each

Final Exam                                                      45%

Total                                                                100%