Beruflich Dokumente
Kultur Dokumente
Index
Index 415
Breakeven point, 185 Cash flow diagrams, 18–20 for equity financing, 328
Bundles. See Independent projects Cell references, in Excel, 349 and MARR, 6–7, 328
Challenger, in replacement analysis, weighted average, 329–32
C 217, 221–24, 326 Cost-of-goods-sold, 278, 364–65
Capital Charts in Excel, 350–51 Cost of invested capital, 335
cost of (See Cost of capital) Class life, 298, 337–39 Cost(s)
debt versus equity, 328 Composite rate of return (CRR), and alternative evaluation, 82,
recovery and AW, 110 143–47 133, 135
Capital budgeting. See Independent Compound amount factors and annual worth, 110, 218–19
projects single payment (F/P), 29–33 of asset ownership, 110
Capitalized cost, 14, 89–94, 114 uniform series (F/A), 35–36 direct, estimating, 261–75
and annual worth, 114–16 Compound interest, 9–14 fixed, 185–88
computation, 90 Compounding indirect, estimating, 275–81
and present worth, 89–94 continuous, 64–65 of invested capital, 335–37
Capital financing frequency, 63 life-cycle, 89
debt, 7, 328 interperiod, 71–72 linear, 185
debt versus equity, 328–32 and simple interest, 9–10 nonlinear, 187
equity, 7, 328 Compounding period in public projects, 163
Capital gain, 321, 326 continuous, 64–65 sign convention, 18, 166
Capital loss 321, 326 defined, 61–62 sunk, 217
Capital recovery and payment period, 65–66 variable, 185–88
in annual worth of costs, 110–12 Constant value dollars, 239, 242 Cumulative cash flow sign test, 139
defined, 110 Consultant’s perspective, 217 Current assets, 363
and inflation, 250–52 Continuous compounding, 64–65 Current liabilities, 363
and replacement analysis, 218–19 Contracts, types, 166 Current ratio, 366
Capital recovery factor. See A/P factor Conventional benefit/cost ratio, 167
Capital recovery for assets. See Conventional cash flow series, D
Depreciation 139–40 DB function, Excel, 293, 303–5, 353
Cash flow Conventional gradient, 38 DDB function, Excel, 293, 303–5,
after tax, 317 Cost, life-cycle, 89 353–54
and EVA, 335 Cost alternative, 82, 133, 135 Debt capital, 6, 328–32
before tax, 317 Cost-capacity equations, 269–71 Debt-equity mix, 329
conventional series, 139–40 Cost centers, 276, 279 Debt financing
defined, 3–4 Cost depletion. See Depletion on balance sheet, 363
diagramming, 18–20 Cost driver, 279–81 cost of, 329–32
discounted, 80 Cost-estimating relationships, and inflation, 246
estimating, 16–17, 261–75 269–75 leveraging, 330–31
incremental, 132 Cost estimation Debt ratio, 367
net, 17, 317 approaches, 262 Decision making
nonconventional, 139–40 cost-capacity method, 269–71 attributes, 370–71
and payback analysis, 199 cost indexes, 266–69 under certainty, 376
positive net, and ROR, 143–44 factor method, 271–73 engineering economy role, 3
and public sector projects, 162–63 and inflation, 7, 87, 239 under risk, 376–84
recurring and nonrecurring, 90 learning curve, 275 Declining balance depreciation,
and replacement analysis, 224 unit method, 264–65 292–95, 338, 353
revenue versus cost, 82 Cost indexes, 266–69 Decreasing gradients, 38
sign test, 139 Cost of capital Defender, in replacement analysis,
zero, 47, 356, 358 and debt-equity mix, 330 217, 220–28
Cash flow after taxes (CFAT), 317 for debt financing, 328, 332 Deflation, 241
Cash flow before taxes (CFBT), 317 defined, 328 Delphi method, 371
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416 Index
Index 417
Goal Seek, Excel, 361–62 Incremental costs nominal versus effective, 61–65
for breakeven, 203–5 and benefit/cost analysis, 168–69 for public sector, 164
for replacement value, 230–31 definition, 132–33 unknown, 21, 30
Gradient, arithmetic and rate-of-return, 135–39 on unrecovered balance, 126
base amount, 38, 43 Incremental rate of return analysis, Interest tables, 388–413
conventional, 37–39 135–39, 320 Internal rate of return. See Rate of
decreasing, 38 Independent projects return
factors, 37, 39, 40 B/C evaluation of, 173 International aspects
shifted, 43–45 bundles, 95 after taxes, 337–39
Gradient, geometric formation, 82–83 contracts, 166
base amount, 39 PW evaluation of, 94–98 cost estimation, 263
factors, 39–41 ROR evaluation of, 135 deflation, 241
shifted, 44 Indexing, income taxes, 314 depreciation, 289, 291, 337–39
Graduated tax rates, 314–17 Indirect costs hyperinflation, 250
Gross income, 301, 314 activity-based costing, 279–81 Inventory turnover ratio, 368
definition, 261, 276 Invested capital, cost of, 335–36
H factor method, 271–73 Investment(s). See also First cost
Half-year convention, 290, 295, rates, 276–77 extra, 132–35
305–6 Infinite life, 89–94, 114–16, 162 permanent, 89–90, 114–16
Highly leveraged corporations, Inflation, 237–53 safe, 6–7
330–31 assumption in PW and AW, 87, 109 IPMT function, Excel, 355
Hurdle rate. See Minimum attractive and capital recovery, 250–52 IRR function, Excel, 22, 49, 129,
rate of return definition, 7, 239 148–51, 355–56
Hyperinflation, 250 and future worth, 246–50
high, 250 L
I and interest rates, 240 Land, 290
Income and MARR, 249 Lang factors, 271
gross, 314 and present worth, 241–46 Least common multiple (LCM)
net, 335 Initial investment. See First cost and annual worth, 109, 139
as revenue, 17, 314, 364 Installation costs, in depreciation, 289 and future worth, 89
taxable, 314, 316, 335–36 Intangible factors, 4. See also and incremental cash flow, 132, 134
Income statement, 364–65 Multiple attribute evaluation; and incremental rate of return,
Income tax, 314–39 Noneconomic factors 132, 135, 137–39
average tax rate, 315 Interest and independent projects, 94–95
and cash flow, 317–20 compound, 10–14 and present worth, 86–88
corporate, 315 defined, 5 Learning curve, 273–75
defined, 314 interperiod, 71 Leveraging, 330–331
and depreciation, 320–26 rate (See Interest rate) Liabilities, 363–64
effective rates, 314, 318 simple, 9–10, 12–14 Life. See Lives
individual taxpayers, 316–17 Interest period, 5 Life cycle, and annual worth, 109
international, 337–39 Interest rate. See also Effective inter- Life cycle costs, 89
present worth of, 324–26 est rate Likert scale, 373
and rate of return, 318 continuous compounding, 64–65 Lives
rates, 314–17 definition, 5 common multiple, 86–88, 109
and replacement studies, inflation-adjusted, 240 equal, 84, 132
326–28 inflation free (real), 240, 247 finite, 93, 116
tax savings, 318 IRR function, 22, 49, 129, independent projects, 94–95
Incremental benefit/cost analysis, 148–51, 355–56 minimum cost, 218–20
168–74 market, 240 perpetual, 89–94, 114–16
Incremental cash flow, 132–35 multiple, 139–43 and rate of return, 132–35
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418 Index
Index 419
and inflation, 241–46 RATE function, Excel, 22, 129, market value, 217, 221
and life cycle cost, 89 147–48, 359 opportunity cost (conventional)
and multiple interest rates, Rate of depreciation approach, 224
140–44 declining balance, 292–93 and study periods, 221,
and rate of return, 135–39 MACRS, 295–96 224–26, 228
and sensitivity analysis, 192–95 straight line, 291 sunk costs, 217
in shifted series, 43 Rate of return (ROR), 124–51 Replacement value, 224, 230
single-payment factor, 29 after-tax, 318–20 Retained earnings, 364
for unequal lives, 86–89 and annual worth, 139 Retirement life. See Economic
versus i graph, 149 on bonds, 130 service life
Present worth factors cautions, 131 Return on assets ratio, 368
gradient, 37–40 composite, 143–44 Return on invested capital, 144
single-payment, 29–30 on debt and equity capital, 330–31 Return on investment (ROI), 5, 124.
uniform-series, 34–35 defined, 5, 126 See also Rate of return
Probability external, 143 Return on sales ratio, 367
defined, 377 on extra investment, 135–39 Revenue alternative, 82, 133, 135, 169
and expected value, 379–81 incremental, 131–33 Risk
Probability distribution, 377 and independent projects, 136 and debt-equity mix, 330–31
Productive hour rate method, 278 internal, 126,143 and decision making, 376
Profit, 185–87 minimum attractive (see Minimum and payback analysis, 201
Profitability index, 124. See also attractive rate of return) and variation in estimates, 376
Rate of return and MIRR function, Excel, 150 Rule of 72, 20–21
Profitability ratios, 366 multiple, 139–47 Rule of 100, 21
Profit-and-loss statement. See and mutually exclusive alternatives, Rule of signs
Income statement 135–39 cash flow, 139–41
Project net-investment, 144–47 ranking inconsistency, 132 cumulative cash flow, 139, 142
Property class, 298 and reinvestment rate, 144
Public sector projects, 162–66 and sensitivity analysis, 195–96 S
and annual worth, 114–16 Ratios, accounting, 366–69 Safe investment, 6–7
benefit/cost analysis, 166–74 Real interest rate, 240, 247 Sales, return on, 367
BOT contracts, 166 Real property, 290, 296 Salvage value
capitalized cost, 89–94 Recaptured depreciation in B/C analysis, 166
Purchasing power, 246–48 definition, 320 and capital recovery, 110–11
PV function, Excel, 22, 35, 358 in replacement study, 326–28 and depreciation, 290, 291,
and NPV function, 97–98, 358 and taxes, 320–23 293, 295
and present worth, 45, 86, 97 Recovery period and market value, 86, 112, 222
and single payment, 32 defined, 289 in replacement analysis, 219–22
and uniform series present effect on taxes, 323–24, 326 Sample, 377
worth, 35 MACRS, 296, 298 average, 379–81
PW vs. i graph, 149 Recovery rate. See Rate of expected value, 379
Quick ratio, 367 depreciation standard deviation, 382
Reinvestment rate, 144 Savings, tax, 318
R Replacement analysis, 215–31 Scatter charts. See xy Excel charts
Random samples, 377 after-tax, 326–28 Sensitivity analysis. See also
Random variable, 377–84 before-tax, 220–24 Breakeven analysis; Goal
classification, 377 cash flow approach, 224 Seek, Excel
expected value, 379–81 consultant’s viewpoint, 217 approach, 192
probability distribution of, 377 depreciation recapture, 326–28 of one parameter, 192–95
standard deviation, 382–84 economic service life, 218–20 of several parameters, 195–96
Rank and rate technique, 374 first costs, 217 with three estimates, 197–98
bLa01293_ndx_414-420 8/30/07 3:37 PM Page 420
420 Index
Service life. See Economic service life Stocks, 328, 330–31 Trade-in value, 218, 224, 290. See also
Shifted gradients, 43–45 Straight line alternative, in Market value; Salvage value
Shifted series, 41–45 MACRS, 298
Sign changes, 139–40 Straight line depreciation, U
Simple cash flow series, 139 291–92, 299 Uniform distribution, 377
Simple interest, 9, 12–14 Straight line rate, 291, 293 Uniform gradient. See Gradient,
Single-payment compound amount Study period arithmetic
factor (F/P), 29 AW evaluation, 109, 112 Uniform percentage method. See
Single payment factors, 29–33 equal service, 86, 95 Declining balance depreciation
Single-payment present worth factor FW analysis, 89 Uniform series
(P/F), 29 independent projects, 95 compounding period and payment
Single-value estimates, 17, 376 PW evaluation, 86 period, 65–72
Sinking fund (A/F) factor, 35–36 replacement analysis, 220–21, description, 14
SLN function, Excel, 291, 224–26 factors, 34–37
303–4, 359 Sunk cost, 217 shifted, 41–45
Solvency ratios, 366 Survivor, in multiple-alternative Unit method, 264–65
Solver tool, Excel, 96, 195 analysis, 135–39, 168–73 Unrecovered balance, 126, 144
Spreadsheet analysis. See also Excel Switching, depreciation methods,
after-tax, 332–35 299–300, 305 V–Y
annual worth, 116–18, 333–34 Value added analysis. See Economic
B/C analysis, 174–76 T value added (EVA)
breakeven analysis, 203–5 Tax depreciation, 289 Value engineering, 263
depreciation, 303–6 Taxable income, 314–26 Variable. See Random variable
effective interest, 72–74 and CFAT, 317–18 Variable costs, 185–86
equivalency computations, 45–49 and depreciation, 322, 324–25 VDB function, Excel, 305–6, 360
EVA, 336–37 negative, 318 for MACRS rates, 296, 305–6
Excel functions, 22, 353–62 Taxes, 314–39. See also After-tax; Weighted attribute method, 370–75
inflation, 252–53 Economic value added; Weighted average cost of capital
layout, 351–53 Income tax; Taxable income (WACC), 329–32
present worth, 96–98, 333–34 Terminology, 14–15 xy Excel charts, 149, 202, 229, 305,
rate of return, 147–51, 333–35 Time placement of dollars, 17–20, 239 334, 350–51
replacement analysis, 228–31 Time value of money, 4–5 Year(s). See also Half-year convention
sensitivity analysis, 201–3 Top down approach, 262–63 cash flow diagrams, 18–20
Standard deviation, 382–84 Total cost relation, 185–88. See also end-of-period convention, 17
STDEV function, Excel, 382, 384 Breakeven analysis symbols, 14–15
bLa01293_es.indd Page 1 8/17/07 1:54:44 AM epg1 /Volumes/208/MHIA060/mhbLa1%0/bLa1endsheet
ISBN: 0073401293
Author: Leland Blank, P.E., Back endsheets
Anthony Tarquin, P.E. Color: 1
Title: Basics of Engineering Economy Pages: 2,3
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ISBN: 0073401293
Author: Leland Blank, P.E., Front endsheets
Anthony Tarquin, P.E. Color: 2
Title: Basics of Engineering Economy Pages: 2,3