# Engineering Economy

4094

### Department

Departamento de Engenharia Mecânica e Industrial

6.0

### Teacher in charge

Maria do Rosário de Meireles Ferreira Cabrita, Virgílio António Cruz Machado

4

96

Português

### Objectives

This course aims to give to Engineering students a set of concepts, principles, technics and appropriate methods to approach and solve representative problems of real-world situations within the Engineering Economics, such as the designing, planning and implementation of projects.

Essentially based on a practical approach, this course emphazises the benefits of concepts such as the time value of the money, the equivalence of interest rates, the cost/benefit analysis and the break-even analysis. Such concepts give to the student the knowledge to make investment decisions in a context of certainty, risk and uncertainty, supporting the choice of the best investment alternative.

### Prerequisites

- To be familiar with the terminology and accounting concepts of balance sheet and income statement;

- Ability to understand and interpret financial and economic information for use in decision making

### Subject matter

I - Introduction and Mathematics of Finance

1.1. Time Value of Money

1.2.  Interest factors: compound and discount concepts

1.3.  Calculating simple and compound interest

1.4.  Interest rates: Nominal and effective interest rates

1.5.  Equivalence of capital

1.6.  Equivalence between interest rates related to different periods

1.7. Annual interest effective rates (TAE and TAEG)

1.8.  Rents and loan repayments

1.9. Leasing

1.10. Long term rentals

II - Engineering economics and the process of taking decision

2.1. Cash flow diagram

2.2. Interest formulas relating present and future values

2.3. Compound and discount factors

2.4. Arithmetic and geometric gradients: definition and formulation

III - Investment Analysis: Selection of Alternatives

3.1. Capital investment considerations

3.2. Selection of investment alternatives based on NPV

3.3. Selection of investment alternatives based on cost/benefits analysis

3.4. Selection of investment alternatives based on IRR.

3.5. Pay-back period

3.6. Cost/benefits analysis. comparing alternatives

IV- Evaluation of Investment Alternatives in Particular Contexts

4.1. Inflation rate

4.2. Depreciation and methods of depreciation

4.3. The influence of taxes and depreciation when comparing investment alternatives

4.4. Comparing analysis based on break-even point and pay-back period

4.5. Comparing analysis in a context of financial restrictions

4.6. Risk and uncertainty

### Bibliography

Azevedo, R. and Nicolau, I., "Elementos de Cálculo Financeiro", Rei dos Livros, Lisboa, 1983.

Blank, L. T. and Tarquin, A. J., "Engineering Economy", Macgraw-Hill Editions-Industrial Engineering Series, Singapore, 1998.

Fernandes, L.S., "Noções Fundamentais de Cálculo Financeiro", Imprensa Nacional- Casa da Moeda, E.P., Lisboa, 1985.

Mateus, J. M. A., "Cálculo Financeiro", 5ª Edition, Edições Sílabo Lda., Lisboa 1999

Nabais, C. F., "Cálculo Financeiro", 1ª Edition, Editorial Presença, Lisboa, 1989.

Oliveira, J. N., "Engenharia Económica: uma abordagem às decisões de investimento", Editora Mcgraw-Hill do Brasil Lda., S. Paulo, 1982.

Sullivan, W. G., Elin M. W. and James T. L. (2006). Engineering Economy, 13th Edition. New Jersey: Pearson Prentice Hall, Inc.

White, J., Agee, M:H: e Case, K:E:, "Principles of Engineering Economics Analysis", Editions J. Wiley & Sons, New York, 1989

### Teaching method

In order to facilitate the development of competencies, this course use different pedagogical approaches.

- Lectures;

- Exercices from Sebenta;

- Exercices/exams from previous years;

- Case studies;

- Discussion of group projects.

### Evaluation method

Discipline success can be obtained in continuous assessment  or in a final exam.

In continuous assessment the success on the discipline will be evaluated by three tests, and an assignment. It is mandatory for obtaining the frequency approval of the course that the student delivers and obtains the approval on the assignment according to the requirements.

The assessment is, 70% individual and 30% group project. Final grade is the weighted average of those assessments. Approval for the UC is subject to obtaining a final mark of not less than 9.5, while the average of two tests should be  equal or more than 9,5.

The frequency to the UC is assigned by the active participation in group work.

The final mark evaluation is obtained applying the following formula: