ENGG 310 Engineering Economy Instructor: Zhigang Tian Department of Mechanical Engineering Universit

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ENGG 310 Engineering EconomyInstructor
Zhigang TianDepartment of Mechanical
EngineeringUniversity of Albertahttp//www.ualb
erta.ca/ztian/ENGG310.htm
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ENGG 310

• Textbook
• Lecture Notes
• Course website
• Lectures
• Office Hours
• TA Office Hours
• Grading Scheme
• Exams (close book)
• Notes

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Instructor
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Focus of Engineering Economy

• Economic Evaluation of Engineering Projects

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Topics to be Covered

• Concepts and Methods - time value of money-
  economic equivalence- investment alternatives
• Engineering Project Economic Analysis- analysis
  of individual project- comparing project
  alternatives- replacement analysis
• Considering Other Factors- tax effects-
  inflation

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Todays Agenda

• Cash flow diagram
• Interest and interest rate
• Simple interest

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Economic Aspects of Daily Life and Work

• Loansstudent loans, car purchase loans,
  mortgages, credit card loans, etc.
• Bankingchecking account, savings account, term
  deposits, etc.
• Jobstarting salary, annual raise, inflation, etc.

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Cash Flow Diagram

• From whose perspective is the diagram drawn?
• Vertical axis cash flow
• Horizontal axis (Time axis)
• Number of periods days, weeks, months, years, etc

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Interest and Interest Rate

• Money has time value
• Interest defined as the money paid for using
  borrowed money
• i Interest RateThe ratio between the interest
  payable at the end of a period and the money
  borrowed at the beginning of the period.

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Simple Interest Calculation

• Interest is earned in each period only on the
  initial principal
• Interest is earned every period, accumulated, and
  paid only at the end of a term of n periods
• Formula
• Total interest charges

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Example 1.2