ENGINEERING ECONOMY - M5zn

1 ENGINEERING ECONOMY Seventh EditionSeventh Edition i1/14/11 8:28 PM1/14/11 8:28 ii1/14/11 8:28 PM1/14/11 8:28 PMSeventh Edition ENGINEERING ECONOMY Leland Blank , P. E. Texas A & M University American University of Sharjah, United Arab Emirates Anthony Tarquin , P. E. University of Texas at El Paso Seventh EditionTM iii1/14/11 8:28 PM1/14/11 8:28 PM ENGINEERING ECONOMY : SEVENTH EDITION Published by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020. Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Previous editions 2005, 2002, and 1998. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

2 Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on recycled, acid-free paper containing 10% postconsumer waste. 1 2 3 4 5 6 7 8 9 0 QDB/QDB 1 0 9 8 7 6 5 4 3 2 1 ISBN 978-0-07-337630-1 MHID 0-07-337630-2 Vice President & Editor-in-Chief: Marty Lange Vice President EDP/Central Publishing Services: Kimberly Meriwether David Global Publisher: Raghothaman Srinivasan Sponsoring Editor: Peter E. Massar Senior Marketing Manager: Curt Reynolds Development Editor: Lorraine K. Buczek Senior Project Manager: Jane Mohr Design Coordinator: Brenda A. Rolwes Cover Designer: Studio Montage, St. Louis, Missouri Cover Image: Brand X Pictures/PunchStock RF Buyer: Kara Kudronowicz Media Project Manager: Balaji Sundararaman Compositor: MPS Limited, a Macmillan Company Typeface: 10/12 Times Printer: Quad/Graphics-Dubuque All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

3 Library of Congress Cataloging-in-Publication Data Blank, Leland T. ENGINEERING ECONOMY / Leland Blank, Anthony Tarquin. 7th ed. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-07-337630-1 (alk. paper) ISBN-10: 0-07-337630-2 1. ENGINEERING ECONOMY . I. Tarquin, Anthony J. II. Title. 2012 dc22 2010052297 iv1/14/11 8:28 PM1/14/11 8:28 PM This book is dedicated to Dr. Frank W. Sheppard, Jr. His lifelong commitment to education, fair fi nancial practices, international outreach, and family values has been an inspiration to many one person at a time. v1/14/11 8:28 PM1/14/11 8:28 PMMcGraw-Hill Create Craft your teaching resources to match the way you teach! With McGraw-Hill Create , , you can easily rearrange chapters, combine material from other content sources, and quickly upload content you have written like your course syllabus or teaching notes.

4 Find the content you need in Create by searching through thousands of leading McGraw-Hill textbooks. Arrange your book to fi t your teaching style. Create even allows you to personalize your book s appearance by selecting the cover and adding your name, school, and course infor-mation. Order a Create book and you ll receive a complimentary print review copy in 3 5 busi-ness days or a complimentary electronic review copy (eComp) via email in minutes. Go to today and register to experience how McGraw-Hill Create empowers you to teach your students your Higher Education and Blackboard Have Teamed Up Blackboard, the Web-based course-management system, has partnered with McGraw-Hill to bet-ter allow students and faculty to use online materials and activities to complement face-to-face teaching. Blackboard features exciting social learning and teaching tools that foster more logical, visually impactful and active learning opportunities for students. You ll transform your closed-door classrooms into communities where students remain connected to their educational experi-ence 24 hours a day.

5 This partnership allows you and your students access to McGraw-Hill s Create right from within your Blackboard course all with one single sign-on. McGraw-Hill and Blackboard can now offer you easy access to industry leading technology and content, whether your campus hosts it, or we do. Be sure to ask your local McGraw-Hill representative for Textbook Options This text is offered through CourseSmart for both instructors and students. CourseSmart is an online resource where students can purchase the complete text online at almost half the cost of a traditional text. Purchasing the eTextbook allows students to take advantage of CourseSmart s web tools for learning, which include full text search, notes and highlighting, and email tools for sharing notes between classmates. To learn more about CourseSmart options, contact your sales representative or visit MCGRAW-HILL DIGITAL vi1/14/11 8:28 PM1/14/11 8:28 PMCONTENTSP reface to Seventh Edition xiiiLEARNINGSTAGE 1 THE FUNDAMENTALS Chapter 1 Foundations of ENGINEERING ECONOMY ENGINEERING Economics: Description and Role in Decision Making Performing an ENGINEERING ECONOMY Study Professional Ethics and Economic Decisions Interest Rate and Rate of Return Terminology and Symbols Cash Flows.

6 Estimation and Diagramming Economic Equivalence Simple and Compound Interest Minimum Attractive Rate of Return Introduction to Spreadsheet Use 27 Chapter Summary 31 Problems 31 Additional Problems and FE Exam Review Questions 35 Case Study Renewable Energy Sources for Electricity Generation 36 Case Study Refrigerator Shells 37 Chapter 2 Factors: How Time and Interest Affect Money 38PE Progressive Example The Cement Factory Case Single-Amount Factors (F P and P F ) Uniform Series Present Worth Factor and Capital Recovery Factor (P A and A P) Sinking Fund Factor and Uniform Series Compound Amount Factor (A F and F A) Factor Values for Untabulated i or n Values Arithmetic Gradient Factors (P G and A G) Geometric Gradient Series Factors Determining i or n for Known Cash Flow Values 61 Chapter Summary 64 Problems 64 Additional Problems and FE Exam Review Questions 69 Case Study Time Marches On.

7 So Does the Interest Rate 70 Chapter 3 Combining Factors and Spreadsheet Functions Calculations for Uniform Series That Are Shifted Calculations Involving Uniform Series and Randomly Placed Single Amounts Calculations for Shifted Gradients 80 Chapter Summary 86 Problems 86 Additional Problems and FE Exam Review Questions 92 Case Study Preserving Land for Public Use 93 Chapter 4 Nominal and Effective Interest Rates 94PE Progressive Example The Credit Card Offer Case Nominal and Effective Interest Rate Statements Effective Annual Interest Rates Effective Interest Rates for Any Time Period Equivalence Relations: Payment Period and Compounding Period Equivalence Relations: Single Amounts with PP CP vii1/14/11 8:28 PM1/14/11 8:28 PMviii Contents Equivalence Relations: Series with PP CP Equivalence Relations: Single Amounts and Series with PP CP Effective Interest Rate for Continuous Compounding Interest Rates That Vary over Time 116 Chapter Summary 117 Problems 118 Additional Problems and FE Exam Review Questions 122 Case Study Is Owning a Home a Net Gain or Net Loss over Time?

8 124 LEARNINGSTAGE 2 BASIC ANALYSIS TOOLS Chapter 5 Present Worth Analysis 128PE Progressive Example Water for Semiconductor Manufacturing Case Formulating Alternatives Present Worth Analysis of Equal-Life Alternatives Present Worth Analysis of Different-Life Alternatives Future Worth Analysis Capitalized Cost Analysis 138 Chapter Summary 142 Problems 142 Additional Problems and FE Exam Review Questions 147 Case Study Comparing Social Security Benefi ts 149 Chapter 6 Annual Worth Analysis Advantages and Uses of Annual Worth Analysis Calculation of Capital Recovery and AW Values Evaluating Alternatives by Annual Worth Analysis AW of a Permanent Investment Life-Cycle Cost Analysis 160 Chapter Summary 164 Problems 164 Additional Problems and FE Exam Review Questions 169 Case Study The Changing Scene of an Annual Worth Analysis 171 Chapter 7 Rate of Return Analysis.

9 One Project Interpretation of a Rate of Return Value Rate of Return Calculation Using a PW or AW Relation Special Considerations When Using the ROR Method Multiple Rate of Return Values Techniques to Remove Multiple Rates of Return Rate of Return of a Bond Investment 190 Chapter Summary 193 Problems 193 Additional Problems and FE Exam Review Questions 198 Case Study Developing and Selling an Innovative Idea 200 Chapter 8 Rate of Return Analysis: Multiple Alternatives Why Incremental Analysis Is Necessary Calculation of Incremental Cash Flows for ROR Analysis Interpretation of Rate of Return on the Extra Investment Rate of Return Evaluation Using PW: Incremental and Breakeven Rate of Return Evaluation Using AW Incremental ROR Analysis of Multiple Alternatives viii1/14/11 8:28 PM1/14/11 8.

10 28 PM Contents All-in-One Spreadsheet Analysis (Optional) 218 Chapter Summary 219 Problems 220 Additional Problems and FE Exam Review Questions 225 Case Study ROR Analysis with Estimated Lives That Vary 226 Case Study How a New ENGINEERING Graduate Can Help His Father 227 Chapter 9 Benefi t/Cost Analysis and Public Sector Economics 228PE Progressive Example Water Treatment Facility #3 Case Public Sector Projects Benefi t/Cost Analysis of a Single Project Alternative Selection Using Incremental B/C Analysis Incremental B/C Analysis of Multiple, Mutually Exclusive Alternatives Service Sector Projects and Cost-Effectiveness Analysis Ethical Considerations in the Public Sector 250 Chapter Summary 251 Problems 252 Additional Problems and FE Exam Review Questions 258 Case Study Comparing B/C Analysis and CEA of Traffi c Accident Reduction 259 LEARNING STAGE 2 EPILOGUE: SELECTING THE BASIC ANALYSIS TOOLLEARNING STAGE 3 MAKING BETTER DECISIONS Chapter 10 Project Financing and Noneconomic Attributes MARR Relative to the Cost of Capital Debt-Equity Mix and Weighted Average Cost of Capital Determination of the Cost of Debt Capital Determination of the Cost of Equity Capital and the MARR Effect of Debt-Equity Mix on Investment Risk Multiple Attribute Analysis.