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Download Engineering Economics by Riggs PDF 158l for Free and Learn the Essentials of Engineering Economy



Outline --- H1: Engineering Economics by Riggs PDF 158l: A Comprehensive Guide H2: What is Engineering Economics and Why is it Important? H3: The Basic Concepts of Engineering Economics H4: Time Value of Money H4: Interest Rates and Equivalence H4: Cash Flow Analysis H3: The Methods of Engineering Economic Analysis H4: Present Worth Method H4: Annual Worth Method H4: Rate of Return Method H4: Benefit-Cost Ratio Method H3: The Applications of Engineering Economics in Engineering Projects H4: Project Selection and Evaluation H4: Depreciation and Taxes H4: Inflation and Price Changes H4: Risk and Uncertainty H2: What is Engineering Economics by Riggs PDF 158l and How to Get It? H3: The Features and Benefits of Engineering Economics by Riggs PDF 158l H3: The Steps to Download Engineering Economics by Riggs PDF 158l for Free H2: Conclusion FAQs Now, let's start writing the article based on this outline. # Engineering Economics by Riggs PDF 158l: A Comprehensive Guide Are you an engineering student or a professional engineer who wants to learn more about engineering economics? Do you want to know how to apply the principles and methods of engineering economics to your engineering projects? Do you want to get a free copy of one of the best books on engineering economics by Riggs PDF 158l? If you answered yes to any of these questions, then this article is for you. In this article, you will learn: - What is engineering economics and why is it important? - What are the basic concepts and methods of engineering economics? - How can you use engineering economics to evaluate and select engineering projects? - What are the features and benefits of Engineering Economics by Riggs PDF 158l? - How can you download Engineering Economics by Riggs PDF 158l for free? By the end of this article, you will have a clear understanding of engineering economics and how to use it in your engineering practice. You will also be able to access a free copy of Engineering Economics by Riggs PDF 158l, which is a comprehensive and practical guide on engineering economics. ## What is Engineering Economics and Why is it Important? Engineering economics, also known as engineering economy, is a branch of economics that deals with the analysis and evaluation of engineering alternatives in terms of their costs and benefits. Engineering economics helps engineers to make rational decisions about the design, operation, maintenance, and replacement of engineering systems and projects. Engineering economics is important because: - It helps engineers to compare different alternatives and choose the best one that meets the technical, economic, environmental, and social criteria. - It helps engineers to estimate the costs and benefits of engineering projects over their life cycle, taking into account factors such as time value of money, interest rates, inflation, depreciation, taxes, risk, and uncertainty. - It helps engineers to optimize the use of resources such as materials, labor, energy, capital, and time in engineering projects. - It helps engineers to communicate effectively with managers, investors, customers, regulators, and other stakeholders about the economic aspects of engineering projects. ## The Basic Concepts of Engineering Economics Before we dive into the methods and applications of engineering economics, let's review some of the basic concepts that are essential for understanding engineering economics. These concepts are: ### Time Value of Money The time value of money (TVM) is the idea that money available today is worth more than the same amount of money available in the future. This is because money today can be invested or spent to earn interest or generate income. Therefore, when comparing different alternatives that involve cash flows at different points in time, we need to convert them to a common basis using a discount rate or an interest rate. ### Interest Rates and Equivalence An interest rate is the percentage of money that is paid or received for borrowing or lending money over a period of time. Interest rates can be simple or compound. Simple interest means that interest is calculated only on the principal amount. Compound interest means that interest is calculated on both the principal amount and the accumulated interest. Equivalence means that two or more cash flows or alternatives are equal in value at a given interest rate. For example, $100 today is equivalent to $110 one year from now at an interest rate of 10% per year. Equivalence can be used to compare different alternatives that have different cash flows and time periods. ### Cash Flow Analysis A cash flow is the amount of money that is received or paid at a certain point in time or over a period of time. A cash flow can be positive or negative. A positive cash flow means that money is received or saved. A negative cash flow means that money is paid or spent. A cash flow diagram is a graphical representation of the cash flows of an alternative or a project over time. It shows the direction, magnitude, and timing of the cash flows. A cash flow diagram can help us to visualize and analyze the economic performance of an alternative or a project. ## The Methods of Engineering Economic Analysis Now that we have learned the basic concepts of engineering economics, let's look at some of the methods that are used to analyze and evaluate engineering alternatives and projects. These methods are: ### Present Worth Method The present worth (PW) method is a method that compares the present value of all the cash flows of an alternative or a project at a given interest rate. The present value (PV) of a cash flow is the amount of money that is equivalent to that cash flow today at a given interest rate. The PW method can be used to find the net present worth (NPW) or the present worth ratio (PWR) of an alternative or a project. The NPW is the difference between the PV of all the positive cash flows and the PV of all the negative cash flows. The NPW indicates the net economic benefit or loss of an alternative or a project. A positive NPW means that the alternative or project is economically feasible and profitable. A negative NPW means that the alternative or project is economically infeasible and unprofitable. The PWR is the ratio of the PV of all the positive cash flows to the PV of all the negative cash flows. The PWR indicates the relative economic benefit or loss of an alternative or a project. A PWR greater than 1 means that the alternative or project is economically feasible and profitable. A PWR less than 1 means that the alternative or project is economically infeasible and unprofitable. ### Annual Worth Method The annual worth (AW) method is a method that compares the equivalent annual value of all the cash flows of an alternative or a project at a given interest rate. The equivalent annual value (EAV) of a cash flow is the amount of money that is equivalent to that cash flow in terms of equal annual payments over a specified period of time at a given interest rate. The AW method can be used to find the net annual worth (NAW) or the annual worth ratio (AWR) of an alternative or a project. The NAW is the difference between the EAV of all the positive cash flows and the EAV of all the negative cash flows. The NAW indicates the net economic benefit or loss of an alternative or project per year. A positive NAW means that the alternative or project is economically feasible and profitable. A negative NAW means that the alternative or project is economically infeasible and unprofitable. The AWR is the ratio of the EAV of all the positive cash flows to the EAV of all the negative cash flows. The AWR indicates the relative economic benefit or loss of an alternative or project per year. A AWR greater than 1 means that the alternative or project is economically feasible and profitable. A AWR less than 1 means that the alternative or project is economically infeasible and unprofitable. ### Rate of Return Method The rate of return (ROR) method is a method that compares the internal rate of return (IRR) of an alternative or a project with a minimum acceptable rate of return (MARR). The IRR is the interest rate that makes the NPW or NAW of an alternative or project equal to zero. The IRR indicates the average annual return on investment (ROI) of an alternative or project. The MARR is the minimum interest rate that an investor or an organization requires to invest in an alternative or project. The MARR reflects the opportunity cost, risk, and inflation factors of an investment. The ROR method can be used to find the incremental rate of return (IRRi) between two alternatives or projects with different initial investments. The IRRi is the interest rate that makes the difference between the NPW or NAW of two alternatives or projects equal to zero. The IRRi indicates the additional return on investment (ROI) of choosing one alternative over another. The ROR method can be used to evaluate an alternative or project by comparing its IRR with its MARR. If IRR > MARR, then the alternative or project is economically feasible and acceptable. the alternative or project is economically infeasible and unacceptable. The ROR method can be used to select the best alternative or project among a set of mutually exclusive alternatives or projects by comparing their IRRi with their MARR. If IRRi > MARR, then the alternative or project with the higher initial investment is preferred. If IRRi 1, then the alternative or project is economically feasible and beneficial. If BCR 1, then the alternative or project with the higher initial investment is preferred. If IBCR NPW(B), Project A is preferred over Project B using the PW method. Using the AW method, we can calculate the NAW of each project as follows: NAW(A) = -100,000(A/P,10%,5) + 30,000 = -100,000(0.2638) + 30,000 = $7,620 NAW(B) = -150,000(A/P,10%,5) + 40,000 = -150,000(0.2638) + 40,000 = $800 Since NAW(A) > NAW(B), Project A is preferred over Project B using the AW method. Using the ROR method, we can calculate the IRR of each project as follows: IRR(A) = 18.13% IRR(B) = 15.45% Since IRR(A) > IRR(B), Project A is preferred over Project B using the ROR method. Using the BCR method, we can calculate the BCR of each project as follows: BCR(A) = 30,000(P/A,10%,5) / 100,000 = 3.791 / 3.333 = 1.137 BCR(B) = 40,000(P/A,10%,5) / 150,000 = 3.791 / 5.000 = 0.758 Since BCR(A) > BCR(B), Project A is preferred over Project B using the BCR method. As we can see, all four methods agree that Project A is the best choice among the two projects. ### Depreciation and Taxes Depreciation is the decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors. Depreciation affects the cash flow and profitability of an engineering project by reducing the taxable income and increasing the tax savings. Engineering economics can help engineers to estimate the depreciation and taxes of an engineering project using different methods such as straight-line, declining balance, sum-of-years digits, and modified accelerated cost recovery system (MACRS). For example, suppose an engineer purchases a machine for $50,000 that has a useful life of 5 years and a salvage value of $10,000. The tax rate is 25% per year. Using the straight-line method, we can calculate the annual depreciation and taxes as follows: Annual depreciation = (50,000 - 10,000) / 5 = $8,000 Annual taxable income = Revenue - Expenses - Depreciation Annual taxes = Taxable income x Tax rate Annual tax savings = Depreciation x Tax rate Using the declining balance method, we can calculate the annual depreciation and taxes as follows: Annual depreciation rate = (1 - n(S/P)) x 100% where n is the useful life, S is the salvage value, and P is the purchase price. Annual depreciation rate = (1 - 5(10,000/50,000)) x 100% = 37.24% Annual depreciation = Book value x Depreciation rate where book value is the value of the asset at the beginning of each year. Annual taxable income = Revenue - Expenses - Depreciation Annual taxes = Taxable income x Tax rate Annual tax savings = Depreciation x Tax rate Using the sum-of-years digits method, we can calculate the annual depreciation and taxes as follows: Sum-of-years digits factor = (n - i + 1) / (n(n+1)/2) where n is the useful life and i is the year number. Annual depreciation = (50,000 - 10,000) x Sum-of-years digits factor Annual taxable income = Revenue - Expenses - Depreciation Annual taxes = Taxable income x Tax rate Annual tax savings = Depreciation x Tax rate Using the MACRS method, we can calculate the annual depreciation and taxes as follows: MACRS percentage = The percentage of the purchase price that can be depreciated in each year according to a predefined table. Annual depreciation = 50,000 x MACRS percentage Annual taxable income = Revenue - Expenses - Depreciation Annual taxes = Taxable income x Tax rate Annual tax savings = Depreciation x Tax rate The following table shows a comparison of the annual depreciation and taxes using different methods for the first three years: Year Straight-line Declining balance Sum-of-years digits MACRS --- --- --- --- --- 1 Depreciation: $8,000Taxes: $XTax savings: $2,000 Depreciation: $18,620Taxes: $XTax savings: $4,655 Depreciation: $16,000Taxes: $XTax savings: $4,000 Depreciation: $15,000Taxes: $XTax savings: $3,750 2 Depreciation: $8,000Taxes: $XTax savings: $2,000 Depreciation: $11,658Taxes: $XTax savings: $2,915 Depreciation: $12,800Taxes: $XTax savings: $3,200 Depreciation: $25,500Taxes: $XTax savings: $6,375 292Taxes: $XTax savings: $1,823 Depreciation: $10,240Taxes: $XTax savings: $2,560 Depreciation: $17,850Taxes: $XTax savings: $4,463 As we can see, different methods of depreciation result in different amounts of depreciation and taxes in each year. The choice of the depreciation method depends on the objectives and preferences of the engineer and the organization. ### Inflation and Price Changes Inflation is the increase in the general level of prices of goods and services over time. Inflation affects the cash flow and profitability of an engineering project by reducing the purchasing power of money and increasing the costs and revenues of the project. Engineering economics can help engineers to account for inflation and price changes in an engineering project using different methods such as constant dollars, current dollars, and real and nominal interest rates. Constant dollars are dollars that have the same purchasing power as in a base year. Constant dollars are used to eliminate the effects of inflation and price changes from the cash flows of a project. Constant dollars can be calculated by dividing the current dollars by a price index that reflects the changes in prices over time. Current dollars are dollars that have the current purchasing power at a given point in time. Current dollars are used to reflect the effects of inflation and price changes on the cash flows of a project. Current dollars can be calculated by multiplying the constant dollars by a price index that reflects the changes in prices over time. Real interest rate is the interest rate that reflects the change in purchasing power of money over time. Real interest rate is used to convert constant dollars to equivalent values at different points in time. Real interest rate can be calculated by subtracting the inflation rate from the nominal interest rate. Nominal interest rate is the interest rate that reflects both the change in purchasing power and the earning potential of money over time. Nominal interest rate is used to convert current dollars to equivalent values at different points in time. Nominal interest rate can be calculated by adding the inflation rate to the real interest rate. For example, suppose an engineer estimates that a project will generate a revenue of $100,000 in year 1 and $120,000 in year 2. The base year is year 0 and the price index is 100 in year 0, 110 in year 1, and 120 in year 2. The nominal interest rate is 15% per year and the inflation rate is 10% per year. Using constant dollars, we can calculate the revenue of the project as follows: Revenue in year 1 (constant dollars) = Revenue in year 1 (current dollars) / Price index in year 1 = 100,000 / 110 = $90,909 Revenue in year 2 (constant dollars) = Revenue in year 2 (current dollars) / Price index in year 2 = 120,000 / 120 = $100,000 Using current dollars, we can calculate the revenue of the project as follows: Revenue in year 1 (current dollars) = Revenue in year 1 (constant dollars) x Price index in year 1 = 90,909 x 110 = $100,000 Revenue in year 2 (current dollars) = Revenue in year 2 (constant dollars) x Price index in year 2 = 100,000 x 120 = $120,000 Using real interest rate, we can calculate the present value of the revenu


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