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Engineering Economics

Winter semester, 2009
Instructor: Marc Prud’Homme
Department of economics: Desmarais Building, 55 Laurier St.
Office: Room 10115
Administration: Room 10101
Email | Courriel:
Office hours: Thursday 5PM to 6:30 PM
Course Website:
uOttawa Website:

Catalog description: The scope of engineering economics; economic production;

break-even analysis; economizing and comparing the mathematics of money: time
value mechanics; equivalent annual - worth comparison method; present worth
comparisons; management of money: date and sensitivity analysis, industrial
practices; analysis of public projects, economic analysis recognizing risk. This
course is reserved for Engineering students and is not open to students registered
in Economics.

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

After successfully completing this course, you should be able to:
• Correctly apply discounted cash-flow analysis to evaluate proposed capital
• Recognize, formulate, and analyze cash-flow models.
• Explain the results of your models to managers and other non-specialist decision

Time and Place

Lectures are at 7:00 PM in the SITE building, room B0138.

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.

There is an email class list for this course, which will be used for general
information, reminders, clarifications, grade distribution, and other purposes (such
as interesting news articles related to the topic of the course).

A course Website is available at The Website is important for the

course, as I will use it for distributing assignments, posting lecture notes, and other
purposes. At first, relatively little material will be posted, but things will be added
regularly during the course. Therefore, please stay aware of what is posted there.
If you have any problems with the web site, please report them to me by email at

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 (if our office hours do not
fit with your schedule), and contact me by email to get answers to any questions you
may have. My time to help is limited, and sometimes I will be away from my office or
out of town, but when I am available, I am happy to help.

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
This course has one required textbook. The text is listed here;.

Required text
N.M. Fraser, Jewkes, E.M., Bernhardt, I., and Tajima, M., Global Engineering
Economy: Financial Decision Making for Engineers, Fourth Edition, Pearson
Canada, 2009 

There is also an online learning center associated with the textbook that contains learning objectives for each chapter, a
chapter overview, spreadsheet exercises, and quizzes.

Required Work
There will be 4 assignments during the semester. The problems will be drawn
mostly from the end-of-chapter questions from the textbook. Because of limited
grading resources, not all the required problems in the assignments will
necessarily be graded but you are expected to work them all.

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.

If you believe that your grade on an assignment or examination is in error, you can
request adjustment of the grade no later than two weeks after the due date of the
item (in other words, one week after your graded work was returned to you). After
that time, adjustments will not be made.

Work as many of the end-of-chapter problems as you can. Answers to the odd-
numbered problems are available at he end of the book.

There will also be two partial examinations during the semester. These exams last
about 60 minutes and consist of multiple choice questions.

The book also includes a CD-Rom with additional problem sets with solutions that
you can explore.

Towards the second half of the semester, a project will be distributed for which you
are expected to apply your knowledge of some of the concepts you have learned in
class using a spreadsheet program such as Excel.

Please note that in all examinations in this course, you will be given a some interest tables
and a formula sheet.

Your course grade will be based on your final course average. Graded work will be
weighted as follows: homework assignments, 20%; project, 20%; two in-class exams
at 10% each; and a final exam, 40%.

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.

Chapter Topic Comment
An introduction to the subject. Most of
1 Engineering decision making the material should be read but will not
be covered in depth in class.
This is the core material for this course
course. If there was ever a chapter you
needed to invest some time in, this is the
2 Time value of money
one. Do as many end-of-chapter problems
as you can. It will pay off in the near
Another important chapter for which you
will be using its content for the
3 Cash flow analysis remainder of the semester. Again work as
many problems as you can from this
4 Comparison methods Part 1 All of the chapter is to be covered.
Comparison methods Part 2
5 All of the chapter is to be covered.

Depreciation and financial

6 All of the chapter is to be covered.
7 Replacement decisions All of the chapter is to be covered.
All of the chapter is to be covered except
8 Taxes
8.8.1 to 8.8.3.
9 Inflation All of the chapter is to be covered.
Public sector decision
10 All of the chapter is to be covered.
All of the chapter is to be covered.
Dealing with uncertainty: Depending on the progression of the
sensitivity analysis material, we might only partially cover
this chapter.
All of the chapter is to be covered.
Dealing with risk: probability Depending on the progression of the
analysis material, we might only partially cover
this chapter.
All of the chapter is to be covered.
Qualitative considerations Depending on the progression of the
and multiple criteria material, we might only partially cover
this chapter.

Absence from an examination or late submission of an assignment
Absence from any examination or test, or late submission of assignments due to
illness, must be justified; otherwise, a penalty will be imposed. The Faculty
reserves the right to accept or reject the reason offered. Reasons such as travel,
employment, and misreading the examination schedule are not usually accepted.

Beware of Academic Fraud!

Academic fraud is an act committed by a student to distort the marking of
assignments, tests, examinations, and other forms of academic evaluation.
Academic fraud is neither accepted nor tolerated by the University. Anyone
found guilty of academic fraud is liable to severe academic sanctions.
Here are a few examples of academic fraud:
•engaging in any form of plagiarism or cheating;
•presenting falsified research data;
•handing in an assignment that was not authored, in whole or in part, by
the student;
•submitting the same assignment in more than one course, without the
written consent of the professors concerned.
In recent years, the development of the Internet has made it much easier to
identify academic plagiarism. The tools available to your professors allow them
to trace the exact origin of a text on the Web, using just a few words.
In cases where students are unsure whether they are at fault, it is their
responsibility to consult the University’s Web site at the following address: « Tools for Writing
Papers and Assignments ».
Persons who have committed or attempted to commit (or have been
accomplices to) academic fraud will be penalized. Here are some examples of
the academic sanctions, which can be imposed:
• a grade of « F » for the assignment or course in question;
• an additional program requirement of between 3 and 30 credits;
• suspension or expulsion from the Faculty.

Last session, most of the students found guilty of fraud were given an « F » for
the course and had between three and twelve credits added to their program
For more information, refer to: