This course is about making choices among competing engineering alternatives. Most of the cash-flw consequences of the alternatives lie in the future, so our attention is directed toward the future and not the past. In Chapter 2, we examine alternatives when the time value of money is not a complicating factor in the analysis. We then turn our attention in Chapter 3 to how future cash flows are estimated. In Chapter 4 and subsequent chapters, we deal with alternatives where the time value o money is a deciding factor in choosing among competing capita investment opportunities. Students can appreciate Chapters 2 and 3 and later chapters when they consider alternatives in their personal lives, such as which job to accept upon graduation, which automobile or truck to purchase, whether to buy a home or rent a residence, and many other choices they will face. Chapter 4 concentrates on the concepts of money– time relationships and economic equivalence. Specifically, we consider the time value of money in evaluating the future revenues and costs associated with alternative uses of money. Then, in Chapter 5, the methods commonly used to analyze the economic consequences and profitability of an alternative are demonstrated. These methods, and their proper use in the comparison of alternatives, are primary subjects of Chapter 6, which also includes a discussion of the appropriate time period for an analysis. Thus, Chapters 4, 5, and 6 together develop an essentia part of the methodology needed for understanding the remainder of the book and for performing engineering economy studies on a before-tax basis. In Chapter 7, the additional details required to accomplish engineering economy studies on an after-tax basis are explained. In the private sector, most engineering economy studies are done on an after- tax basis. Therefore, Chapter 7 adds to the basic methodology developed in Chapters 4, 5, and 6. The effects of inflation (or deflation), price changes, and international exchange rates are the topics of Chapter 8. The concepts for handling price changes and exchange rates in an engineering economy study are discussed both comprehensively and pragmatically from an application viewpoint. Often, an organization must analyze whether existing assets should be continued in service or replaced with new assets to meet current and future operating needs. In Chapter 9, techniques for addressing this question are developed and presented. Because the replacement of assets requires significant capital, decisions made in this area are important and demand special attention. Chapter 10 is dedicated to the analysis of public projects with the benefit– cost ratio method of comparison.
