ECE472 — Engineering Economic Analysis and Entrepreneurship

A compulsory course on economics in an engineering context. Spiritually follows JRE300 — Fundamentals of Accounting and Finance. We used the 2000 edition of the Principles of Engineering Economic Analysis textbook, by A.J. Szonyi, R.G. Fenton, et al.

Concepts covered

• Cash flow (and cash flow diagrams)
• Cost terminology
  • Life cycle costs
  • Economic, functional life
  • Depreciation
  • Future, opportunity costs
  • Direct, indirect, overhead costs
  • Fixed, variable costs
  • Average, marginal costs
• Corporate financing
  • Corporate debt
    • Bonds
  • Equity
    • Shares
    • Dividends
• Project estimation
• Cost estimation
  • Price index
  • Cost-capacity relationship
• Time value of money (TVM)
  • Interest
  • Net present value
  • Internal rate of return
• Accounting
  • Balance sheet
  • Income statement
  • Ratio analysis
• Public investment
• Sensitivity analysis

Exam notes

Exam format: 4 parts, covers entire course, tests your understanding

• Question 1
  • Sunk cost vs. no sunk cost
  • Bonds vs. equity
  • NPV vs. IRR
  • HYR vs. no HYR
  • CCTF, perpetuity
• Question 2
  • Two parts
  • Covers chapters 2, 3, 4
    • 2: types of costs — life cycle, marginal, variable, selling price
    • 3: TVM. Using a calculator, go to ~4 decimal places
      • Inflation, multiple compounding periods, applications (mortgage, bond, stock)
    • 4: NPV/IRR/EUAC/FV
      • Incremental analysis
• Question 3 — public sector (benefit/cost analysis)
  • Net benefit to public vs. net cost to government
  • $\frac{B}{C}$ vs. $B-C$
  • VSL comes up here (not $50k/head,actually$8-10 million)
  • Life is “not worth 8-10 mil, it’s ‘invaluable’, but for projects we need to have a cut-off, willing to spend 8-10 mil to make it safer”
• Question 4 — after tax question
  • Very likely lease vs. buy question, due to inflation, bring to EOY 0 and compare there.