Engineering Economics by R-Panneer-Selvam

ENGR 280 Engineering Economics
Faculty of Engineering
University of Victoria
Fall 2005
Teaching Group: Instructor
 Dr. Wei Li
 Adjunct Assistant Professor
 Research: Wireless Communication Engineering
 Office: ELW B356
 [email protected]
 www.ece.uvic.ca/~wli (ENGR280 Home!!!)
2
Teaching Group: Teaching Assistants
 Craig Tipping [email protected] Tutorial and Quiz Group 1
(Students with Last Name A-M )
 Le Yang [email protected] Tutorial and Quiz Group 2
(Students with Last Name N-Z )
 Hanfeng Chen [email protected] Final Quiz, final mark
 Jing Zhong [email protected] Report, Homepage
3
Introductions
 What Wei will do …..…….
 Text Books
 Lectures and Projects
 Quiz and Tutorial
 Marking Schemes
 Office Hour
4
Wei (We?) will……………
 Work and work smart

hard
 Communicate with teaching group when needed

 Know the required content of the text book
 Practice problems and examples in the text book
 Show up in all Quizzes, Practical Reports
 Keep quiet in classroom
 Relax and have fun
5
Text Book
 Engineering Economics in
Canada
 3rd Edition
 Niall M. Fraser
Elizabeth M. Jewkes
Irwin Bernhardt
May Tajima
University of Waterloo
 ISBN: 0-13-126957-7
Pearson Education Canada
Copyright: 2006 6
Reference Books
 Economics: Canada in the Global Environment
Michael Parkin and Robin Bade.
 Contemporary Engineering Economics: A Canadian
Perspective, Addison Wesley Co. by Park, Porteous,
Sadler and Zuo (1995).
 Engineering Economics, 2nd Canadian Edition,
McGraw Hill Ltd. by Riggs, Bedworth, Randhwa,
and Khan (1997)
7
Lectures and Project
 Classroom Lectures
 Sept. 13, 2005-Dec. 2, 2005
 TWF, 11:30-12:30, ELL168 (ELL 061)
 Slides will be on web www.ece.uvic.ca/~wli
 Practice Problems
 5 groups of practice problems will be given
 All the problems will be chosen from the text book
 Solutions will be given in tutorial classes
 Project: Group Study
 Practical Application: Find a project topic
 Project report, team work !!!
 At least 3, up to 6 students a group
8
Quizzes and Tutorial
 Quizzes and final quiz (all in class) (in two classrooms)
 Based on examples and problems in the text book
 45 minutes long, about 5 problems
 Tutorial (in two classrooms)
 Tutorial will follow the quizzes and cover practice problems
 Extra time will be given for questions in tutorials
 When and where
 Time: announced in class, on the web (might be changed)
 Room: ELL 168 and ELL 061
 Have to skip a quiz? Contact me before you do that!
9
Marking Scheme
 Practice Problems 00%

 5 quizzes @ 10% each 50%
 Final quiz 25%
 Project Report 25%
10
Office Hours
 In Tutorial
 There will be question and answer time in tutorial
 Other than Tutorial

 Wednesday 3:30-4:20 ELW B356 or B335
 Friday 3:30-4:20 ELW B356 or B335
 Email me before your visit, thanks.
11
Teaching/Studying Method
 Multi-media
 Power point presentation (PDF on Web)
 Email/Web communication
 Important
 Do not miss quizzes
 Submit report on time
 Key to success
 Study the examples and problems in text book
 Report should be complete, practical, and original
12
Website…..
www.ece.uvic.ca/~wli
13
Why is This Course Important to You?
 It is required (the rule….)
 Background in economics and finance is an important

part of your education
 Engineering is one of the better paid professions.
14
Why is This Course Important to YOU?
 Buy a car (leasing versus buying, cash or loan, cash or
interest discount), home (mortgage: points, interest,
duration),
 Put children through college (options for saving money)
 be prepared for retirement:
 Many companies offer tax-deferred savings plans to
employees. How do you pick a good plan or plans?

 Many companies offer stock options to employees.
Some Intel employees have become millionaires

through stock options. What is there to be concerned
about in investing in company stock options?
15
Key Issues
 Important
 Do not miss quizzes
 Submit report on time
 Key to success
 Study the examples and problems in text book
 Report should be complete, practical, and original
16
Summary
 Getting the idea is important, not the numbers
 Teaching Group is here to help you
5 Quizzes, 1 Final Quizzes, 1 Project
 No copy machine: everything on web
17
What is Engineering Economics?
 Subset of General Economics
 Not concerned with general economics
situations - concerned with project at hand
only
 Analysis performed by technical
professionals (not economists)
 Requires advanced technical knowledge in
some cases
18
Engineering Economists Answer
 Why do this at all?
 Is there a need for the project?
 Why do it now?
 Can it be delayed? Can we afford it now?
 Why do it this way?

 Is this the best alternative? Is this the optimal
solution?
 Will the project pay?
 Will we run a loss or make a profit?
19
Sample Situation
 Hydro vs. Thermal power
 Hydro:  Thermal
 expensive initially  less expensive initially
 far away from load  can be near load
centres (high centres
transmission cost)  require fuel
 no fuel required  shorter life
 longer life  can cause pollution
 no pollution
20
Other examples
 Buy vs. rent (car, house, equipment)

 Good quality (expensive) but longer life
vs. poor quality (cheap) but shorter life
 car, shoes, computers
 Investments decisions - GIC, RRSP,
Bonds, Stocks and Shares
 Steel vs. concrete bridge
 Capacity expansion problems
21
Choosing the Better Alternative
 Economic analysis conclusions
 Input from
 governments / politicians
 special interest groups
 public consultations
 family, spouse, financial advisor
22
4 Steps in Engineering Economics Study
 Define alternatives in physical terms

 Cost and revenue estimates
 All money estimates placed on a comparable basis
 appropriate interest rate used
 time horizon (economic life)
 Recommend choice among alternatives
23
Example: Voluntary Retirement Plan
 Marginal tax = 30%
 Allowed to deposit yearly=$9,000
 2 years to retirement
 Invest in the fund with expected return 20%
1. INVEST IN VOLUNTARY RETIREMENT ACCOUNT
before tax = (9,000*1.2*1.2 + 9,000*1.2) = 23,760

after tax = 23,760 *0.7 = $16,632
24
Voluntary Retirement Plan
2. RECEIVE MONEY AND INVEST IN FUND
$9,000 after tax = $9,000*0.7 = $6,300

before tax = (6,300 *1.2*1.2 + 6,300 *1.2) = $16,632
taxable income = 16,632 - 2* 6,300 = $4,032
tax = 4,032*0.3 = $1,210
after tax = 16,632 - 1,210 = $15,422
DIFFERENCE = 16,632 - 15,422 = $1,210
25
Voluntary Retirement Plan
2. RECEIVE MONEY AND INVEST IN FUND
$9,000 after tax = $9,000*0.7 = $6,300

before tax = (6,300 *1.2*1.2 + 6,300 *1.2) = $16,632
taxable income = 16,632 - 2* 6,300 = $4,032
tax = 4,032*0.3 = $1,210
after tax = 16,632 - 1,210 = $15,422
DIFFERENCE = 16,632 - 15,422 = $1,210
26

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ENGR 280 Engineering Economics

 Adjunct Assistant Professor

 Research: Wireless Communication Engineering

 Office: ELW B356

 www.ece.uvic.ca/~wli (ENGR280 Home!!!)

 Craig Tipping [email protected] Tutorial and Quiz Group 1

(Students with Last Name A-M )

 Le Yang [email protected] Tutorial and Quiz Group 2

(Students with Last Name N-Z )

 Hanfeng Chen [email protected] Final Quiz, final mark

 Jing Zhong [email protected] Report, Homepage

 What Wei will do …..…….

 Work and work smart

 Communicate with teaching group when needed

 Practice Problems 00%

 Other than Tutorial

 Email me before your visit, thanks.

 Submit report on time

 Background in economics and finance is an important

 Engineering is one of the better paid professions.

employees. How do you pick a good plan or plans?

Some Intel employees have become millionaires

 Teaching Group is here to help you

5 Quizzes, 1 Final Quizzes, 1 Project

 No copy machine: everything on web

 Why do it this way?

 Buy vs. rent (car, house, equipment)

 Define alternatives in physical terms

 time horizon (economic life)

 Recommend choice among alternatives

1. INVEST IN VOLUNTARY RETIREMENT ACCOUNT

before tax = (9,000*1.2*1.2 + 9,000*1.2) = 23,760

2. RECEIVE MONEY AND INVEST IN FUND

$9,000 after tax = $9,000*0.7 = $6,300

DIFFERENCE = 16,632 - 15,422 = $1,210

2. RECEIVE MONEY AND INVEST IN FUND

$9,000 after tax = $9,000*0.7 = $6,300

DIFFERENCE = 16,632 - 15,422 = $1,210

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before tax = (9,0001.21.2 + 9,000*1.2) = 23,760