Advanced Engineering Economy (IND 511) | GSÜ

Content

Objective

The objectives of this course are to enable the student to understand the basics of engineering economy decisions, to review economic decision making techniques including methods for risk and uncertainty, and to develop overall economic cost awareness which will prove useful in personal investment decision making as well as in many types of engineering and management decisions.

Course Content

- Introduction and organization
- Review of discrete cash flow models
- Uniform and gradient series
- Nominal versus effective interest rates
- Continuous compounding and continuous cash flows
- Mid-period convention
- Time-dependent interest rates
- Loans
- Equivalent methods for comparing alternatives (single project)
- Present worth, future worth and annual worth methods
- Benefit-cost ratio method
- Rate of return method and variations
- Internal rate of return method
- External rate of return method
- Decision rules for selecting among multiple alternatives
- Present worth, future worth and annual worth methods
- Benefit-cost ratio method
- Internal rate of return method
- Approximate and supplementary methods
- Payback method
- Profitability index
- Depreciation methods
- After-tax economy studies
- Index numbers
- Incorporating inflation into economic analysis
- Replacement models
- Retirement with identical replacement
- Generalized replacement model
- Dynamic programming formulations
- Mathematical programming formulations for capital budgeting
- Risk analysis
- Statistical moments of random variables
- Random cash flows
- Random project life
- Decision criteria and methods for risk and uncertainty
- Portfolio optimization
- Introduction to real options approach
- Project presentations

Course Learning Outcomes

LO 1: Cash flow models.
LO 2: Effects of inflation on economic analysis.
LO 3: Replacement models.
LO 4: Mathematical programming formulations for capital budgeting.
LO 5: Decision criteria and methods for risk and uncertainty
LO 6: Multi-attribute and multi-objective decision making for investment analysis.
LO 7: Portfolio optimization.

Teaching and Learning Methods

Lecture; problem sessions; discussion; self study.

References

- Park, C.S., Sharp-Bette, G.P., Advanced Engineering Economics, John Wiley & Sons, 1990.
- Fleischer, G.A., Introduction to Engineering Economy, PWS Publishing Company, Boston, 1994.

Weekly Contents

Theory Topics
Week	Weekly Contents
1	Introduction and organization, Review of discrete cash flow models, Uniform and gradient series, Nominal versus effective interest rates.
2	Continuous compounding and continuous cash flows, Mid-period convention, Time-dependent interest rates, Loans.
3	Equivalent methods for comparing alternatives (single project): Present worth, future worth and annual worth methods, Benefit-cost ratio method, Rate of return method and variations, Internal rate of return method, External rate of return method.
4	Decision rules for selecting among multiple alternatives: Present worth, future worth and annual worth methods, Benefit-cost ratio method, Internal rate of return method. Approximate and supplementary methods: Payback method, Profitability index.
5	Depreciation methods, After-tax economy studies.
6	Index numbers, Incorporating inflation into economic analysis.
7	Replacement models: Retirement with identical replacement, Generalized replacement model, Dynamic programming formulations.
8	Mathematical programming formulations for capital budgeting.
9	Midterm
10	Risk analysis, Statistical moments of random variables, Random cash flows, Random project life.
11	Decision criteria and methods for risk and uncertainty.
12	Portfolio optimization.
13	Introduction to real options approach.
14	Project presentations.

Practice Topics
Week	Weekly Contents
1
2
3
4
5
6
7
8
9
10
11
12
13
14

Assessment System

Contribution to Overall Grade
Activities	Number	Contribution
Contribution of in-term studies to overall grade	2	50
Contribution of final exam to overall grade	1	50
Total	3	100

In-Term Studies
Activities	Number	Contribution
Assignments	0	0
Presentation	0	0
Midterm Examinations (including preparation)	1	25
Project	1	25
Laboratory	0	0
Other Applications	0	0
Quiz	0	0
Term Paper/ Project	0	0
Portfolio Study	0	0
Reports	0	0
Learning Diary	0	0
Thesis/ Project	0	0
Seminar	0	0
Other	0	0
Total	2	50

Relation of Proficiency

No	Program Learning Outcomes	Contribution
No	Program Learning Outcomes	1	2	3	4	5
1					X
2					X
3						X
4				X
5						X
6				X
7					X
8					X
9			X
10			X
11				X
12			X

ECTS

Activities	Number	Period	Total Workload
Class Hours	14	3	42
Working Hours out of Class	14	5	70
Midterm Examinations (including preparation)	3	0	0
Other Applications	6	1	6
Thesis/ Project	12	0	0
Total Workload			118
Total Workload / 25			4.72
Credits ECTS			5