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CE-882 Economic Decision Analysis in Construction
Campus MCE
Programs PG
Session Spring Semester 2017
Course Title Economic Decision Analysis in Construction
Course Code CE-882
Credit Hours 3-0
Pre-Requisutes Engineering Economics courses of UG level
Course Objectives Aims to give students a broad introduction to the subject of engineering economics to enable them to do analysis and compare engineering alternative economically for their implementation particularly in CEM program.
Detail Content
  • Introduction. The Decision-Making Process. The Principles of Engineering Economy. The Rent Paid for Use of Money. Simple and Compound Interest.
  • Cost Concepts. Cost Terminology. Break Even Analysis. Estimation. Accounting Principles.
  • Time Value of Money. Why Consider Return to Capital? Cash Flow. Interest Calculations. Single Sums of Money. Series of Cash Flows. Continuous Compounding. The Concept of Equivalence.
  • The Value of a Single Payment Now Compared to a Single Payment in the Future (P/F, F/P). Single Payment Compound Amount Factor (F/P). Nominal and Effective Interest. Continuous Interest. Resale or Salvage Value. Comparison of Alternatives.
  • The Value of One Future Payment Compared to a Uniform Series of Payments (F/A, A/F). The Future Sum of Periodic Deposits. Applications for F/A & A/F Equations. Negative Interest Rate. Rates, Fares, and Tolls. Fund Flow Problems.
  • The Value of One Present Payment Compared to a Uniform Series of Payments (P/A, A/P). Installment Loan. P/A Equation. Amount of the Final Payment in a Series. More Than One Compounding Period Occurs Between Payments in a Series.
  • Arithmetic Gradient, G: The Constant Increment to a Series of Periodic Payments. Future Values of Gradient Amounts (F/G). Uniform Series Values of Gradient Amounts (A/G). Present Worth Values of Gradient Amounts (P/G).
  • Geometric Gradient, The Constant Percentage Increment. Payment Series Changing by a Constant Percentage. Future Lump Sum or Equivalent Uniform Series Payments of a Geometric Gradient Series. Comparison of the Geometric Gradient to the Arithmetic Gradient.
  • Present Worth Method of Comparing Alternatives. Comparison of Alternatives with Equal Life Spans. Comparison of Alternatives with Unequal Life Spans. Present Worth When a Series of Payments Starts at the Present, Past or Future. Financing a Loan. Sunk Costs. Subsidy by Means of Low Interest Rates.
  • Annual Payments Method for Comparing Alternatives. Comparing Equivalent Uniform Series. Converting the Three Types of Cash Flow into an Equivalent Uniform Series. Geometric Gradient. Given the Annual Series, Find the Gradient. Selecting the Alternative by Comparison of Equivalent Annual Worth.
  • Future Worth Method of Comparing Alternatives. Comparing Future Worth. Cost of Financing. Problems of Growth. The “Do Nothing” Alternative.
  • Rate of Return Method. Basics of ROR. Concurrent Income and Costs. Multiple Rates of Return.
  • Incremental Rate of Return (IROR) on Required Investments. Comparison with Equal Life Spans. MARR, the Minimum Attractive Rate of Return. Comparing Different Life Spans. Comparing Alternatives by the ROR Versus the IROR.
  • Break Even Comparisons. The Break Even Point Involving Incomes (Benefits) and Costs. Limitations of Break Even Analysis. Break Even Costs, Find Unknown Life.
  • Benefit/Cost Analysis. Comparing Benefit to Costs. Several Methods for Calculating B/C Ratio. Comparing of B/C Results with Rate of Return. Evaluating Costs of Life and Personal Injury. Cost Effectiveness: Utility/Cost Method of Evaluating Intangibles.
  • Taxes. Sources of Tax Revenue. Income Tax. Effect of Taxes on Cash Flow.
  • Depreciation. Depreciation: A Loss in Value. Measuring Depreciation. Depreciation Accounting, Actual Asset Value, and Tax Accounting. Four Standard Methods for Calculating Depreciation.
  • Bond Financing for Public Works and Corporate Investment. Financing Public Works. Mechanics of Funding Public Works through Municipal Bond Issue. Projects Financed by Revenue Bonds. Corporate Bonds for Capital Projects. The Bond Market. Buying and Selling Bonds.
  • Home Ownership and Mortgage Financing, Owning Versus Renting. Mortgage Financing for Home Ownership. Mortgages in the Investment Market. Second and Third Mortgages. Income Tax Benefits from Home Ownership. Comparisons: Rent an Apartment or Buy a Home.
  • Investment Real Estate. Land Inventory. Changes in Value of Real Estate. Taxes on Real Estate Investments. Investment Return.
  • Equipment Replacement Analysis. Economic Life. Sensitivity Analysis. Maintenance Level. Functional Obsolescence.
  • Utility Rate Studies. Utility Customers. Electric Utility Systems Rate Studies. Inflation. Nature of Inflation. How Inflation Works. Inflation in engineering Cost Estimating. Taxes and Inflation. Comparison of Alternatives in an Environment of Inflation. Projects with Financing.
Text/Ref Books Donald G. Newnan, Ted G. Eschenbach, and Jerome P. Lavelle. (2004). Engineering Economic Analysis. 9th Edition. Oxford University Press, USA.
Time Schedule Spring 2015
Faculty/Resource Person Lt Col Mughees Aslam