Engineering Economy Concepts

Engineering Economy Study Notes

• Depreciation refers to the decrease in the value of property over time.
• The demand for a commodity typically varies inversely with its price, which reflects the law of demand.
• Oligopoly arises when there are few suppliers, and each supplier's actions significantly impact others.
• Interest is the amount paid for using borrowed capital or the income generated by loaned money.
• Net profit represents the difference between estimated income and estimated expenses.
• Competition exists when many vendors offer a product without restrictions.
• Valuation is the process of determining the worth of properties or equipment.
• Working capital constitutes the funds required for an enterprise or product's ongoing operations.
• Economic life is the time during which a property can be operated profitably.
• Book value is the worth of property as shown in an enterprise's accounting records.
• Expenses are costs that are neither labor nor materials.
• Gratuitous obligations have no condition attached.
• Gross margin is gross profit as a percentage of sales, where gross profit is sales less the cost of goods sold.
• Annuity refers to a series of equal payments made at equal intervals.
• A contract legally binds an agreement or promise to exchange goods or services.
• Current ratio refers to an index of short term paying ability
• Producer goods are used to produce consumer goods.
• Deferred annuity involves equal payments at equal intervals, with the first payment occurring after several periods have passed.
• Monopsony describes a market with only one buyer for an item without substitutes.
• Market value is the price a willing buyer will pay to a willing seller when neither is compelled to act.
• Annuity due is a type of annuity where payments are made at the beginning of each period.
• Declining balance method is a depreciation method using a fixed percentage of the depreciated book value at the start of the year.
• Time value of money refers to the cumulative effect of elapsed time on the value of money, considering its earning power.
• Corporation is a business organization where double taxation is a disadvantage.
• Sinking fund factor determines the cumulative amount of a sinking fund based on interest rate, time, and periodic deposits.
• Franchise value represents the intangible value from the exclusive right to provide a specific product or service in a region.
• Physical life is the time during which an item can perform its intended function after design and manufacture
• Consumer goods are products people use directly to satisfy their wants.
• Differential cost refers to a change in cost for a small change in volume of production.
• Sunk cost is an amount that has been spent and cannot be recovered.
• Demand factor is the ratio between the average demand and the maximum demand
• Power factor is the ratio of output in watts to the product of volts and amperes
• Depletion refers to the decrease in property value from gradually extracting its content.
• Capitalized cost includes the sum of the first cost and the present value of all future costs for replacement, operation, and maintenance.
• Resale value is the actual lower resale value, and the book value difference.
• Monopoly occurs when only a single supplier offers a unique product or service, preventing other suppliers from entering.
• Market is a place where buyers and sellers come together for transactions.
• Rate of return is the ratio of annual net profit to the capital invested.
• Scrap value is the price obtained when a willing buyer purchases a commodity from a willing seller.
• Book value is price of property when sold for junk
• Sinking fund is an interest-earning fund with equal deposits made at equal intervals.
• Capital is a term wealth which is placed in a business and could include cash equipment, raw materials and finished products
• First cost of any property includes all costs to get the assets ready for use.
• Interest is the difference between future value and present value.
• Ordinary annuity involves payments made at the end of each period, starting from the first.
• Capitalized cost equals the first cost plus the cost of perpetual maintenance.
• Cash flow refers to the flow back of profit plus depreciation from a given project.
• Yield is the profit from a project or enterprise without considering obligations.
• Present worth factor is a mathematical expression used to determine the present value of an annuity.
• Interest is the payment for the use of borrowed money.
• Effective rate is the rate at which the present worth of the cash flow on a project is zero of the interest earned by an investment
• Amortization distributes the initial cost of a capitalized asset through periodic charges, like depreciation.
• Depletion refers to the lessening of an asset’s value due to the decrease in available quantity, such as with natural resources.
• Tangibles are items that can be quantitatively measured or valued, including costs and physical assets.
• Collateral is the capital tied up in the enterprise or project
• Amortization is a method of repaying a debt with principal and interest included, often through a series of equal payments over time
• Debenture bonds have no security behind them other than the assets of a corporation issuing these
• Marginal cost refers to the additional cost of producing one more unit of a product.
• Corporation is an aggregation of individuals formed to conduct business and recognized as a fictitious person by law.
• Profit and loss statement reports an enterprise's revenues and expenses for a specified period.
• Break even point is the percentage of capacity at which income equals expenses.
• Book value is the recorded current value of an asset.
• lnterest rate is the ratio of interest payment to the principal for a given unit of time and usually expressed as a percentage of the principal
• Straight line method is a depreciation method where recovery is spread uniformly over the asset's estimated life.
• Effective interest is the true value of interest rate computed by equations for compound interest for a one-year period
• Salvage value is sometimes known as scrap value of an asset.
• Collective bargaining involves negotiation of wage rates and employment conditions by labor and management representatives.
• Cooperative is a form of business firm which is owned and run by a group of individuals for their mutual benefit
• Depreciation is the reduction in the value of an asset due to constant use and passage of time
• In an ordinary annuity, the first payment is NOT made at the beginning of each period.
• Enterprise is not typically a type of business organization
• Selling cost is the cost of the product arising from expenditures incurred in disposing of the products and services produced.
• Economic life is the time interval that minimizes the assets total equivalent annual costs or maximizes its equivalent annual income.
• Property consists of things that have value
• Yield measures annual return on profit over associated investment as a percentage or decimal.
• Corporation bond is a written contract under seal whereby a corporation binds itself to pay a specific sum of money to the owner of the bond.