Every Engineer Should Know This! by Motes Andrew

Author:Motes, Andrew
Language: eng
Format: epub
Publisher: AM Photonics
Published: 2015-01-30T16:00:00+00:00

Engineering Economics Lesson #1 (Basic Formulas)

This short course is based on the book Managerial and Engineering Economy: Economic Decision-Making by George A. Taylor.

Cost incurred at present time is different than cost incurred in the future because of interest (or return on investment). In other words, money can be earned by deferring the cost to later and investing the money now. Here’s an example.

Example #1

A welding laser can be designed and built for $10,000. Its annual operating disbursements for labor, electricity, maintenance, and so on are expected to be $8,000 per year over its predicted eight-year life time. At the end of the laser’s life, its salvage value will be $2,000. This is Option A. An alternate design will do the same job but will cost $20,000. Its operating disbursements will be $6,000 a year over an eight-year economic life, with $3,000 salvage value at its end of life. This is Option B. Which is the better design when cost is included in the decision?

The following timeline illustrates the disbursements and income.

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