SOLVING ENGINEERING ECONOMICS PROBLEMS
The techniques presented so far illustrate how to convert single amounts of money, and uniform or gradient series of money, into some equivalent sum at another point in time. These compound interest computations are an essential part of engineering economics problems.
The typical situation is that we have a number of alternatives; the question is, which alternative should we select? The customary method of solution is to express each alternative in some common form and then choose the best, taking both the monetary and intangible factors into account. In most computations an interest rate must be used. It is often called the Minimum Attractive Rate of Return (MARR) to indicate that this is the smallest interest rate, or rate of return, at which one is willing to invest money.
Engineering economics problems inevitably fall into one of three categories:
Fixed input. The amount of money or other input resources is fixed. Example: A project engineer has a budget of $450,000 to overhaul a plant.
Fixed output. There is a fixed task, or other output to be accomplished. Example: A mechanical contractor has been awarded a fixed price contract to air-condition a building.
Neither input nor output fixed. This is the general situation where neither the amount of money (or other inputs), nor the amount of benefits (or other outputs) are fixed. Example: A consulting engineering firm has more work available than it can handle. It is considering paying the staff to work...