Higher Technological Institute " H T I "

Engineering

Engineering
Economy
Lecture 1
Course Topics/hours/Los Matrix
Total Contact hrs. LOs Covered by
Week No. Topic
Hours Lec. Tut. Lab. Course
Week -1 Introduction 3 √ √ LO 1
3 √ √ LO 1
Week-2 Description and Role in Decision Making
Week-3 3 √ √ LO1
Simple Interest
Week-4 Cost Concepts and Behavior 3 √ √ LO2
Week5 3 √ √ LO1
Cost Concepts and Behavior
LO2
Week-6 3 √ √ LO3
Life-Cycle Product Costing and Pricing
Week-7 Cash Flows: Estimation and Diagramming 3 √ √ LO3
Week-8
Midterm Exam.
Week-9 Introduction to Use Spreadsheet 3 √ √ LO4
Week-10 Factors: How Time and Interest Affect Money 3 √ √ LO5
Week-11 PW, FW, EUAS / EUAC 3 √ √ LO6
Week-12 Net present value, rate of interest 3 √ √ LO7
Week-13 Payback period, benefit. 3 √ √ LO8
Choosing among alternatives 3 √ √ LO7
Week-14
LO8
Week 15 Final Exam.
Course Assessment Methods:
Assessment Schedule and Grades Distribution:
List of References:

1. Course Notes:
• Lecture notes
• The majority of information in class will be given through handouts made by the lecturer.
2. Required Text Books and Additional References:
• Jose A. Sepulveda, William E. Souder & Byron S. Gottfried, "Engineering Economics" ,Mc-
Graw-Hill Book Company, NW,1984.
• H. G. Thuesen, W. J. Fabrycky & G. J. Thuesen, "Engineering Economy", Prentice-Hall,Inc.,
NJ, 1971.
3. Recommended Books:
• E. Paul DeGarmo, William G. Sullivan & James A. Bontadelli, "Engineering Economy",
Macmillan publishing company,Nw,1990.
4. Web Sites:
Engineering What is Economics ?
A social science of how limited
resources are used to satisfy
unlimited human wants

Engineering
Economics
What is Engineering ?
Engineering is the application
of scientific, economic, social,
Economics and practical knowledge, in
order to design, build, and
maintain structures, machines,
devices, systems, and materials
What is Engineering Economy?

• Engineering Economy
– Define as branch of economics which involves the
application of definite laws of economics, theories of
investment and business practices to engineering
problems involving cost.

– It also involves the study of cost features and other

financial data and their application in the field of
engineering as bases for decision.
• Engineering economics is used in a broad number
of conditions.
Engineering Economy Study
➢ Define as stand alone solution for a given situation this mean
that are several ways of accomplishing a given task.
Some parameters include:
➢ equipment first cost,
➢ expected life,
➢ salvage value (estimated trade-in, resale, or market value),
and annual operating cost (AOC), which can also be
termed maintenance and operating (M&O) cost.
Cash flow

All cash flows are estimated for each alternative.

risk and sensitivity analyses are needed to improve

the chances
of selecting the best alternative.
Evaluation criterion:
The rule by which correct choice between different
alternatives can be made.

Time value of money:

The change in the a mount of money over a given time
period.

The estimates and the decision usually involve four

essential elements:
Cash flows
Times of occurrence of cash flows
Interest rates for time value of money
Measure of economic worth for selecting an alternative
 Interest
interest is the difference between an ending amount of
money and the beginning amount.

interest is measure of the increase between the original

sum (borrowed or invested) and final amount owed or
occurred as follow:-

A) For invested money

Interest= Total a mount accumulated –original investment ‫ مبلغ االستثمار االصلي‬-‫اجمالي المبلغ المتراكم‬

B) For borrowed money

Interest= present a mount owed –original loan
‫ المبلغ االصلي‬-‫اجمالي المبلغ المستحق‬
Interest Rate and Rate of Return
Interest Rate and Rate of Return (ROR)
Define as the ratio between the interest accrued per unit
time and the original a mount expresses as a percentage
in case of borrowed money.
But in case of invested money is called ROR.
Both values are calculated as follow:
EX (1)
An employee at LaserKinetics.com borrows $10,000 on May 1
and must repay a total of $10,700 exactly 1 year later.
Determine the interest amount and the interest rate paid.
Solution
The perspective here is that of the borrower since $10,700
repays a loan. Apply Equation to determine the interest paid.
EX (2)
An Stereophonics, Inc. plans to borrow $20,000 from a bank for 1
year at 9% interest for new recording equipment. (a) Compute the
interest, (b) the total amount (AO) due after 1 year and 2 years
considering the simple (not compound) interest.
Solution
Ans.1a

Ans.1b
Total amount in 1 year= Pr + I = 20000 + 1800 = 21800$
Total amount in 2 years= Pr + 2I = 20000 + (2*1800) = 23600$
EX (3)

Dave borrows $1500 to repair his house. He will pay off the loan
after 3 years by paying back the principal plus 3.5% interest for
each year. How much will he pay in interest, and how much will she
pack back altogether
Use the percent equation to find the amount of interest earned in
one year.
Solution

I = 3.5% × 1500
I = 0.035 × 1500
I = $52.5
Total interest in 3 years = 52.5 × 3 = 157.5
Total amount to be paid back = principal + interest
= 1500 + 157.5 = 1657.5

Therefore, the interest to be paid by Dave is $157.5, and the total amount altogether is
$1657.5.
Solve:
A bank lends $4000 on loan to a businessman in
simple interest. If he promises to pay $20 every
month for a period of two years. What is the
interest rate on the loan per annum?
Ann opens a saving account with a deposit
of $670. She will earn 1.5% interest each year
on her money. How much interest will she
earn over a period of 10 years? (assuming she
does not add or take out any money).
Any Questions ?

Thank You!