Engineering Economics Overview
29 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What determines prices in a market economy?

Prices are determined by the balance between supply and demand.

What is market equilibrium?

Market equilibrium occurs when supply and demand meet, ensuring efficient resource allocation.

State the Law of Demand.

The Law of Demand states that higher prices lead to lower quantity demanded.

Explain the Law of Supply.

<p>The Law of Supply indicates that higher prices result in a higher quantity supplied.</p> Signup and view all the answers

List two key principles of engineering economics.

<p>Principle 1: A nearby Naira is worth more than a distant Naira. Principle 3: Marginal revenue must exceed marginal cost.</p> Signup and view all the answers

What are the steps in the decision-making process according to engineering economics?

<p>The steps include recognizing the decision problem, defining goals, collecting information, identifying alternatives, selecting criteria, and choosing the best alternative.</p> Signup and view all the answers

What does additional risk in decision-making require?

<p>Additional risk is not taken without the expected additional return.</p> Signup and view all the answers

Name two types of strategic engineering economic decisions.

<p>Service or Quality Improvement and Cost Reduction.</p> Signup and view all the answers

What is the primary reason that one Naira today is more valuable than one Naira in the future?

<p>Due to its earning potentials.</p> Signup and view all the answers

List the four main components of financial statements included in a corporation's annual report.

<p>Balance sheet, income statement, statement of changes in financial position, and auditors' report.</p> Signup and view all the answers

What key information does the balance sheet summarize?

<p>It summarizes the financial position of the corporation, listing its assets and liabilities.</p> Signup and view all the answers

Explain the difference between interest paid and interest earned.

<p>Interest paid is incurred when borrowing money, while interest earned is received from savings or investments.</p> Signup and view all the answers

In the context of interest calculations, what is the formula to determine the interest amount?

<p>Interest = amount owed now - principal.</p> Signup and view all the answers

If an employee borrows N10,000 and repays N10,700 after one year, what is the interest amount?

<p>N700.</p> Signup and view all the answers

How can the interest rate be calculated from the interest and principal?

<p>Interest rate (%) = (Interest / Principal) × 100.</p> Signup and view all the answers

Why is understanding financial statements crucial for decision-making in engineering?

<p>It provides essential insights into the financial condition and performance of organizations.</p> Signup and view all the answers

What is the primary objective of engineering economics?

<p>To evaluate the monetary consequences of products, projects, and processes while balancing initial costs with future operational expenses.</p> Signup and view all the answers

List two key considerations when selecting a project in engineering economics.

<p>Project goals and objectives, and risk assessment.</p> Signup and view all the answers

What is meant by 'scarcity' in the context of engineering economics?

<p>Scarcity refers to the limited resources available to fulfill unlimited wants, necessitating trade-offs in resource use.</p> Signup and view all the answers

Explain the concept of Return on Investment (ROI) in engineering economics.

<p>ROI measures the profitability of an investment by comparing the amount gained or lost relative to the amount invested.</p> Signup and view all the answers

What role does cost-benefit analysis play in environmental projects?

<p>Cost-benefit analysis helps evaluate the economic viability of environmental projects by comparing the expected benefits to their associated costs.</p> Signup and view all the answers

How do supply and demand influence economic decisions in engineering?

<p>Supply and demand dictate the market availability of products and services, influencing pricing and project feasibility.</p> Signup and view all the answers

What is 'life-cycle costing' and why is it important in equipment selection?

<p>Life-cycle costing involves assessing the total cost of ownership of an asset over its lifespan, ensuring informed decision-making in equipment selection.</p> Signup and view all the answers

In what ways do value engineering and process improvement contribute to cost reduction?

<p>Value engineering focuses on maximizing project value while minimizing costs, while process improvement aims to enhance efficiency and reduce waste.</p> Signup and view all the answers

How is the interest calculated for simple interest over multiple years?

<p>The interest for simple interest is calculated only on the initial deposit, not on any accrued interest.</p> Signup and view all the answers

If a person invests $10,000 at a 7% annual interest rate, what is the total amount after one year?

<p>$10,700</p> Signup and view all the answers

What distinguishes compound interest from simple interest?

<p>Compound interest includes interest earned on previously accrued interest as well as the principal, while simple interest does not.</p> Signup and view all the answers

Using the formula F = P(1 + Ni), what does each variable represent?

<p>P is the present value, N is the number of interest periods, and i is the interest rate per period.</p> Signup and view all the answers

What would be the difference in future value if $10,000 is invested at 7% for 3 years using simple interest compared to compound interest?

<p>Using simple interest, the future value would be $10,210, while using compound interest it would be approximately $12,249.</p> Signup and view all the answers

Flashcards

Present Value (P)

The amount of money at a specific point in time, typically the present or future.

Future Value (F)

The amount of money at a future point in time, after interest has accrued.

Number of Periods (n)

The number of interest periods, typically years, months or days.

Interest Rate (i)

The interest rate per period, typically expressed as a percentage.

Signup and view all the flashcards

Simple Interest

Interest calculated only on the original principal amount, ignoring any accrued interest.

Signup and view all the flashcards

Rate of Return

Receiving a larger amount of money back than the initial sum invested or lent. This occurs when money earns interest over time.

Signup and view all the flashcards

Principal

The amount of money borrowed or lent initially.

Signup and view all the flashcards

Interest Rate

The cost of borrowing money, represented as a percentage of the principal.

Signup and view all the flashcards

Time Value of Money

The concept that the value of money is greater today than in the future due to its potential to earn interest.

Signup and view all the flashcards

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and equity at a specific point in time.

Signup and view all the flashcards

Income Statement

A financial statement that shows a company's revenues, expenses, and net income over a specific period.

Signup and view all the flashcards

Cash Flow Statement

A financial statement that tracks cash inflows and outflows over a specific period.

Signup and view all the flashcards

Financial Statements

A set of financial statements that a company provides to investors and other stakeholders to report its financial performance and position.

Signup and view all the flashcards

Market Equilibrium

The point where the amount of a product or service suppliers are willing to offer matches the amount buyers want to purchase.

Signup and view all the flashcards

Law of Demand

As the price of a good or service increases, people tend to buy less of it.

Signup and view all the flashcards

Law of Supply

As the price of a good or service increases, producers are motivated to supply more of it.

Signup and view all the flashcards

Decision-making process

The process of identifying a problem, setting goals, gathering information, evaluating options, choosing criteria, and selecting the best solution.

Signup and view all the flashcards

Strategic Engineering Economic Decisions

Decisions that affect the long-term strategy and direction of an engineering project or company.

Signup and view all the flashcards

Focus on Differences

Focus on the differences in outcomes when comparing alternative options. Ignore irrelevant common factors.

Signup and view all the flashcards

Marginal Revenue exceeds Marginal Cost

Only undertake an action if the potential revenue generated exceeds the cost of that action.

Signup and view all the flashcards

What is Engineering Economics?

Engineering economics is the process of evaluating the financial consequences of engineering projects and products, taking into account both initial costs and future operating expenses.

Signup and view all the flashcards

What is Scarcity in Engineering?

Scarcity refers to the limited availability of resources (like time, money, materials) to meet unlimited wants; engineers must make choices on how best to use these limited resources.

Signup and view all the flashcards

How do Supply and Demand work in Engineering?

Supply and demand is the foundation of economics. Demand represents the amount of a product or service that consumers want, while supply represents the amount that producers can offer. These forces interact to determine prices.

Signup and view all the flashcards

What is a Feasibility Study?

Feasibility studies help determine if a project is viable by assessing its technical, economic, and operational feasibility.

Signup and view all the flashcards

What is Capital Budgeting?

Capital budgeting is the planning and managing of a company's long-term investments, focusing on how to allocate funds for projects with a lifespan of more than a year.

Signup and view all the flashcards

What is Risk Assessment?

Risk assessment identifies, analyzes, and evaluates potential risks associated with a project, helping to assess the likelihood and impact of those risks in order to make informed decisions.

Signup and view all the flashcards

What is Return on Investment (ROI)?

Return on Investment (ROI) is a crucial metric used to measure the profitability of an investment. It indicates the ratio of the profit earned to the amount invested.

Signup and view all the flashcards

What is Cost-Benefit Analysis?

Cost-benefit analysis (CBA) is a systematic way of evaluating the costs and benefits of a project to determine its overall value. It helps to make informed decisions on whether to pursue a project.

Signup and view all the flashcards

Study Notes

Engineering Economics Overview

  • Engineering economics evaluates the monetary consequences of products, projects, and processes.
  • It balances initial costs with future operational expenses.

Key Considerations in Design and Project Selection

  • Project Goals and Objectives
  • Feasibility and Constraints
  • Risk Assessment
  • Stakeholder Analysis
  • Return on Investment (ROI)
  • Design Considerations
  • Project Management Approach
  • Environmental and Social Impact

Applications of Engineering Economics

  • Project Evaluation: Feasibility studies, capital budgeting, risk assessment.
  • Equipment Selection: Cost-benefit analysis, life-cycle costing, replacement analysis.
  • Cost Reduction: Value engineering, cost control, process improvement.
  • Investment Decisions: Capital structure, dividend policy, mergers, and acquisitions.
  • Environmental and Sustainability: Cost-benefit analysis of environmental projects, life-cycle assessment, sustainable design.

Basic Concepts of Engineering Economics

  • Scarcity: A fundamental economic problem of having limited resources to meet unlimited wants. Engineers must make trade-offs.
  • Supply and Demand: Demand represents buyers' desires, supply represents the market offering. Prices are determined by the balance between supply and demand.
  • Market Equilibrium: When supply and demand meet, the economy is in balance, resulting in efficient resource allocation without surplus or shortage.
  • Law of Demand: Higher prices result in lower quantities demanded, assuming all other factors remain the same.
  • Law of Supply: Higher prices encourage producers to supply more, increasing revenue potentially.

Decision-Making Process

  • Recognize the decision problem.
  • Define the goals or objectives.
  • Gather all relevant information.
  • Identify a set of feasible decision alternatives.
  • Select the decision criteria.
  • Select the best alternative.

Types of Strategic Engineering Economic Decisions

  • Service or Quality Improvement
  • New Products or Product Expansion
  • Equipment and Process Selection
  • Cost Reduction
  • Equipment Replacement

Fundamental Principles of Engineering Economics

  • Principle 1: A nearby Naira is worth more than a distant Naira (the time value of money).
  • Principle 2: Focus on the differences between alternatives.
  • Principle 3: Ensure marginal revenue exceeds marginal cost.
  • Principle 4: Take additional risk only if the expected return is adequate.

Importance of Time Value of Money

  • The present Naira has a higher value than a future Naira due to earning potential. This guides economic decision-making in engineering.

Understanding Financial Statements

  • Annual reports contain financial statements, including the balance sheet, the income statement, the statement of changes in financial position, and the auditors' report.

Components of Financial Statements

  • Balance Sheet: Summarizes the financial position of the corporation by listing assets, liabilities, and equity.
  • Income Statement: Shows revenues and expenses during a specific period, along with net income and retained earnings.
  • Cash Flow Statement: Provides a summary of all cash inflows and outflows of a company.

Interest Rate and Rate of Return

  • Interest is paid on borrowed funds and earned on investments.
  • It's a crucial concept for calculating the time value of money, used extensively in engineering
  • Interest Rate = amount owed now - principal
  • Interest rate (%) = Interest * 100/principal

Worked Example (Illustrative)

  • Example of calculating interest paid and rate.

Definition of Terms (Financial Calculations)

  • P: Present value (value at time zero, or "today").
  • F: Future value (value at a future time)
  • A: Series of equal payments (often periodic).
  • n: Number of interest periods (e.g., years).
  • i: Interest rate per period.
  • t: Stated time period.

Simple Interest

  • Interest is calculated only on the initial principal borrowed or invested.
  • Calculation: F = P (1 + (n * i))

Compound Interest

  • Interest is calculated on any accrued interest (or previous interest).
  • Calculation: F = P(1+i)**n

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

MEE 505 Engineering Economics Lecture Notes PDF

Description

This quiz covers the fundamentals of engineering economics, focusing on the monetary implications of various projects, products, and processes. It explores key considerations in design and project selection as well as applications in project evaluation, equipment selection, and cost reduction strategies.

More Like This

Introduction to Software Engineering
12 questions

Introduction to Software Engineering

LaudableSchrodinger avatar
LaudableSchrodinger
Engineering Economics: Principles and Applications
17 questions

Engineering Economics: Principles and Applications

TidyTriangle1836 avatar
TidyTriangle1836
Construction Economics & Estimations Basics
36 questions

Construction Economics & Estimations Basics

SprightlyVision avatar
SprightlyVision
Introduction to Engineering Economy
48 questions

Introduction to Engineering Economy

UndamagedCentaur9095 avatar
UndamagedCentaur9095
Use Quizgecko on...
Browser
Open
Browser
Browser