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Unit 01 lecture 01

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engineering economics-unit 01


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  • To run very large businesses (exception J&J)
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    • 1. ENGR 3360U Unit 1General Introduction to Engineering Economics Dr. J. Michael Bennett, P. Eng., PMP, UOIT, Version 2013-I-01
    • 2. Unit 1 – General Introduction to Engineering Economics Change Record 2013-I-01 Initial Creation 2013-I-09 small edits1-2 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 3. Unit 1 – General Introduction to Engineering Economics Course Outline 1. Engineering Economics 10. Uncertainty and Risk 2. General Economics 11. Income and Depreciation 1. Microeconomics 12. After-tax Cash Flows 2. Macroeconomics 13. Replacement Analysis 3. Money and the Bank of 14. Inflation Canada 15. MARR Selection 3. Engineering Estimation 16. Public Sector Issues 4. Interest and Equivalence 17. What Engineering should know 5. Present Worth Analysis about Accounting 6. Annual Cash Flow 18. Personal Economics for the 7. Rate of Return Analysis Engineer 8. Picking the Best Choice 9. Other Choosing Techniques1-3 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 4. Unit 1 – General Introduction to Engineering Economics Learning Objectives Why should you take this course? This course is a bird, right? Engineering and economy1-4 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 5. Unit 1 – General Introduction to Engineering Economics Mottos Time is money An engineer is someone who can build for a dime, what any damn fool can build for a dollar There are three kinds of economists; those who count and those who don’t1-5 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 6. Unit 1 – General Introduction to Engineering Economics Observation How many filthy rich economists do you know? Do you think that Bill Gates would pass this course? Would he even take it?1-6 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 7. Unit 1 – General Introduction to Engineering Economics Economics The “dismal” science (Carlyle) “founded” by Scottish philosopher Adam Smith “Wealth of Nations” The “invisible hand” of the market place1-7 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 8. Unit 1 – General Introduction to Engineering Economics Carlyle’s snide quote “Teach a parrot to say “supply and demand” and you’ve got an economist” “Give me a one-handed economist; all of the others say <<on one hand…on the other hand>>” Harry S. Truman Is a Nobel category1-8 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 9. Unit 1 – General Introduction to Engineering Economics Roadmap for Chapter 1 1. Options and 6. Spreadsheet functions Questions 7. Minimum attractive rate 2. Decision Making of return 3. Macro and Micro 8. Cash flows Economics 9. Doubling times 4. Fundamental Business Structures 5. Interest Rates1-9 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 10. Unit 1 – General Introduction to Engineering Economics What is the most important Engineering Variable? $ £ € ¥1-10 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 11. Unit 1 – General Introduction to Engineering EconomicsWhy Engineering Economy is Important to Engineers Engineers “design” and create Designing involves economic decisions Engineers must be able to incorporate economic analysis into their creative efforts Often engineers must select and execute from multiple alternatives A proper economic analysis for selection and execution is a fundamental aspect of engineering1-11 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 12. Unit 1 – General Introduction to Engineering Economics Engineering Economy The art and science that involves: Formulating, Estimating and Evaluating economic outcomes Always concerned with the selection and possible execution of alternatives given the economic parameters associated with the project1-12 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 13. Unit 1 – General Introduction to Engineering Economics Role of Engineering Economy in Decision Making Decision making involves the estimation of future events/outcomes Engineering economy aids in quantifying past outcomes and forecasting future outcomes Engineering Economy provides a framework for modeling problems involving: Time Money Interest rates1-13 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 14. Unit 1 – General Introduction to Engineering Economics Two Concerns of Engineering Engineers have the dual task of determining: 1. What society wants (its needs), and 2. How best to combine econo mic resources, processes, etc. to produce the goods and services desired by society. Efficiency: economic and physical efficiency must be considered.1-14 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 15. Unit 1 – General Introduction to Engineering Economics Physical and Economic Efficiency Physical efficiency Measure of the success of engineering activity in the physical environment; ratio of outputs to inputs Maximum physical efficiency ratio is 1 (or 100%) Physical units include BTUs, kw-hours, etc.1-15 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 16. Unit 1 – General Introduction to Engineering Economics Economic efficiency Ratio of value or worth to cost; must exceed 1 or 100% Engineer must produce outputs that are most- valued (of greatest satisfaction) by society (economic efficiency)1-16 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 17. Unit 1 – General Introduction to Engineering Economics Evolution of Economic & Physical Efficiency 1950s 1970s+ Physical efficiency Economic Efficiency ECONOMIC SPHERE ECONOMIC ENGINEERING SPHERE (Economic SPHERE efficiency) (Physical efficiency) ENGINEERING SPHERE Independent decision making Significant overlap1-17 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 18. Unit 1 – General Introduction to Engineering Economics 2 The Decision Making Process 1. Understand the problem – define objectives 2. Collect relevant information 3. Define the set of feasible alternatives 4. Identify the criteria for decision making 5. Evaluate the alternatives and apply sensitivity analysis 6. Select the “best” alternative 7. Implement the alternative and monitor results1-18 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 19. Unit 1 – General Introduction to Engineering Economics2.1 Understand the problem - define objectives Problems can be simple, complex or intermediate Are referred to as “opportunities” Build a new model Replace an old plant Open up in a new territory Must refine opportunities into metrics (objectives)1-19 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 20. Unit 1 – General Introduction to Engineering Economics Project Objectives Develop expertise in some area. Become competitive Improve productivity Reduce costs Modify an existing facility Develop a new sales strategy Develop a new product1-20 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 21. Unit 1 – General Introduction to Engineering Economics SMART Objectives S = Specific M = Measurable A = Achievable R = Realistic T = Time-Limited1-21 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 22. Unit 1 – General Introduction to Engineering Economics Minor Characteristics of Objectives They should be verifiable aligned cast in terms of deliverables comprehensible single-ended1-22 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 23. Unit 1 – General Introduction to Engineering Economics Priorities of Objectives Hand rank Matrix1-23 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 24. Unit 1 – General Introduction to Engineering Economics Scoring Models Can build various objectives into a scoring model1-24 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 25. Unit 1 – General Introduction to Engineering Economics 2.2 Collect Relevant Information Objectives are metricized so start there Money is a biggy As is Interest Rates, Inflation Rate, etc May need customer surveys (consider Microsoft launching Windows-8)1-25 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 26. Unit 1 – General Introduction to Engineering Economics Example: Gassing up in Oshawa Need to evaluate all prices on a daily basis plus weekly plus monthly plus “externals” Observations of a Shrewd Gas-upper Morning BAD Later in the evening best South side normally lower than north end1-26 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 27. Unit 1 – General Introduction to Engineering Economics 2.3 Define the Set of Feasible Alternatives Do nothing (always a possibility) Alternative A Alternative B ……… Alternative n1-27 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 28. Unit 1 – General Introduction to Engineering Economics Opportunity Cost What will it cost you by NOT doing something? Can be 1 thing: can be 1,000 things For example, going to FEAS/UOIT OC is flipping burgers at MickeyDs1-28 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 29. Unit 1 – General Introduction to Engineering Economics OC of going to Class You could be flipping burgers at MickyDs 6*8*10 = $480/wk 35 week = 35*480 = 17,000 Your OPPORTUNITY COST IS $17,0001-29 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 30. Unit 1 – General Introduction to Engineering Economics 2.4 Identify the Criteria for Decision Making What is the most important criterion? Normally, money but can be other things (protection of the environment, exclusion of a competitor into a new market, etc.)1-30 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 31. Unit 1 – General Introduction to Engineering Economics 2.5 Evaluate the Alternatives (apply sensitivity analysis) Some parameters are key Interest rates Inflation rate Canadian dollar rate Demand expectation Price of oil SA varies these to see how the chosen model reacts1-31 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 32. Unit 1 – General Introduction to Engineering Economics 2.6 Select the “Best” Alternative Be sure to state all assumptions and constraints When the project is done, we will do a post- mortem Needs these to justify decisions For example, Tar Sands development: assumed price of oil critical1-32 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 33. Unit 1 – General Introduction to Engineering Economics2.7 Implement the Best and Monitor Do it Check it Do root cause analysis1-33 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 34. Unit 1 – General Introduction to Engineering Economics Time Value of Money All firms make use of investment of funds Investments are expected to earn a return Investment involves money Money possesses a “time value” The “time value” of money is the most important concept in engineering economy1-34 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 35. Unit 1 – General Introduction to Engineering EconomicsPerforming An Engineering Economy Study Engineering Economy Studies: Define Alternatives  Do-nothing alternative – maintain the status quo  Define feasible alternatives – that can solve the problem Define/estimate the current and future cash flows Perform the analysis  Apply the tools and methods of engineering economy Selection of the best alternative Implement and monitor1-35 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 36. Unit 1 – General Introduction to Engineering Economics 3 Macro and Microeconomics Fundamental approach of Economics Draw a circle Inside, Microeconomics describes Actions of individuals and groups in individual markets (choice under scarcity, implications on prices and demand) Outside, Macroeconomics describes Performance of national economies and their policies (unemployment rate, overall level of prices, GDP, prime rate, price of oil etc).1-36 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 37. Unit 1 – General Introduction to Engineering Economics Microeconomics Comparative advantage Supply and demand Competition and the invisible hand Efficiency and exchange Profit1-37 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 38. Unit 1 – General Introduction to Engineering Economics Macroeconomics Global supply and demand Economic growth and living standards Productivity Recessions and expansions Unemployment Inflation Money, Banks and Central Banking1-38 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 39. Unit 1 – General Introduction to Engineering Economics 4 Fundamental Business Structures 1. Sole proprietorship 2. Partnership 3. Limited partnership 4. Corporation1-39 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 40. Unit 1 – General Introduction to Engineering Economics 4.1 Sole Proprietorship Business owned by one person Easiest to start, least regulated Owner keeps all of the profits BUT is responsible for all debts Owner has unlimited liability which means that Loophole and Loophole can foreclose on your house, Mercedes, wifey’s diamonds, hubby’s Hummers, etc1-40 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 41. Unit 1 – General Introduction to Engineering Economics Characteristics of Sole Proprietorships Cheapest and fastest to set up All business profits are taxed as personal income Owner has unlimited liability, extending to all of her assets Life of the firm is limited to the life of the owner Transfer of ownership requires the sale of the whole business to the new owner Equity financing is limited to personal wealth of the owner1-41 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 42. Unit 1 – General Introduction to Engineering Economics 4.2 Partnership Involves two or more owners. Here partners run the company together They also share all profits and losses, under a pre-existing agreement1-42 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 43. Unit 1 – General Introduction to Engineering Economics Characteristics of Partnerships Inexpensive, easy to form General partners have full liability for debts Partnership is dissolved when a partner dies or withdraws Difficult for partners to raise money Management control resides only with the partners1-43 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 44. Unit 1 – General Introduction to Engineering Economics 4.3 Limited Partnership Some of the partners are involved only as investors These are called limited partners Are liable only up to the amount of their investment The daily running of the business is not their concern1-44 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 45. Unit 1 – General Introduction to Engineering Economics Characteristics of Limited Partnerships Limited partners have limited liability LPs can withdraw at any time LPs have no control over management of the group1-45 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 46. Unit 1 – General Introduction to Engineering Economics 4.1 Corporations Corporations are owned by shareholders Set up as an independent business entity with clearly specified rights and obligations Shareholders elect a Board of Directors which is responsible for picking managers to run the business in the best interests of the shareholders The corporation is a separate legal entity which is responsible for its debts1-46 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 47. Unit 1 – General Introduction to Engineering Economics Corporations cont. Humans and other legal entities (other corporations, trusts) can hold shares in the corporation If no stockholders exist, can be a “non- stock corporation” Also a “membership corporations” Not-for- profit corps such as churches, charities etc.1-47 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 48. Unit 1 – General Introduction to Engineering Economics Stocks Can be closely held (private) or publicly traded “Traded” means traded on a stock exchange or an “over-the-counter” market1-48 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 49. Unit 1 – General Introduction to Engineering Economics Characteristics of Corporations Ownership of the corp is easily transferred The corporation has unlimited life (oldest is a Japanese company, 800 years old) Shareholders’ liability is limited to amount of shares held Is almost the only way to run large organizations (J exception!) Is the easiest form to raise large amounts of capital quickly (e.g.. Google)1-49 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 50. Unit 1 – General Introduction to Engineering Economics Corporate Finance (for all 4) Capital Budgeting – what are the long-term strategies the company should undertake? Capital Structure – what is the best way to raise long-term financing to make new products Working Capital Management – how does the company manage its short-term cash flow in order to pay people, suppliers etc1-50 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 51. Unit 1 – General Introduction to Engineering Economics Corporate Financing Primary goal is to ensure that the return on capital exceeds the cost of capital without taking big risks Goal is to enhance corporate value1-51 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 52. Unit 1 – General Introduction to Engineering Economics 5 Interest Rates and Rate of Return Interest – the manifestation of the time value of money Rental fee that one pays to use someone else’s money Difference between an ending amount of money and a beginning amount of money interest accrued per time unit Interest rate (%) = x 100% original amount1-52 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 53. Unit 1 – General Introduction to Engineering Economics Rate of Return Interest earned over a period of time is expressed as a percentage of the original amount, specifically; interest accrued per specific time period Rate of return (%) = X100% original amount Borrower’s perspective – interest rate paid Lender’s perspective – interest rate earned1-53 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 54. Unit 1 – General Introduction to Engineering Economics Economic Equivalence Different sums of money at different times may be equal in economic value $106 one year from now 0 1 Interest rate = 6% per year $100 now $100 now is said to be equivalent to $106 one year from now, if the $100 is invested at the interest rate of 6% per year.1-54 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 55. Unit 1 – General Introduction to Engineering Economics Simple and Compound Interest Simple Interest: Interest = (principal)(number of periods)(interest rate) Compound Interest: Interest earns interest on interest Compounds over time Interest = (principal + all accrued interest) (interest rate)1-55 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 56. Unit 1 – General Introduction to Engineering Economics Terminology and Symbols P = a present sum of money at a time designated as t = 0 { t represents time} F = a future amount of money at some point in time later than t = 0 A = a series of equal, end-of-period cash flows n = the number of interest periods i = the interest rate or rate of return per time period, in percent1-56 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 57. Unit 1 – General Introduction to Engineering Economics 6. Introduction To Solution By Computer Application of Microsoft’s Excel© spreadsheet program Excel financial functions Present Value P: =PV(i%,n,A,F) Future Value F: =FV(i%,n,A,P) Equal, periodic value: =PMT(i%,n,P,F) No. of periods: =NPER((i%,A,P,F) Compound interest rate: =RATE(n,A,P,F) Compound interest rate: =IRR(first_cell:last_cell) Present value of a series: =NPV(i%,cell2:last_cell) + cell11-57 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 58. Unit 1 – General Introduction to Engineering Economics7. MARR (Minimum Attractive Rate of Return) Investors expect to earn a return on their investment (commitment of funds) over time We expect to see economic efficiencies greater than 100% A profitable investment should earn (return) funds in excess of the investment amounts Economic projects should earn a reasonable return, which is termed: MARR – Minimum Attractive Rate of Return Also termed the “hurdle” rate for an investment1-58 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 59. Unit 1 – General Introduction to Engineering Economics The MARR The MARR is established by the financial managers of the firm The MARR is expressed as a percent value Most, if not all, projects should earn at a rate equal to or greater than the established MARR MARR’s are set based upon: The cost of all types of capital Allowance for risk1-59 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 60. Unit 1 – General Introduction to Engineering Economics Types of Financing Equity Financing – the firm uses funds either from retained earnings, new stock issues, or owner’s infusion of money Debt Financing – the firm borrows funds from outside sources The cost of debt financing = the interest rate charged on the debt (loan) amounts The MARR is approximated from the weighted average cost of all sources of capital to the firm A firm’s ROR > MARR > cost of capital1-60 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 61. Unit 1 – General Introduction to Engineering Economics8 Cash Flows: Their Estimation and Diagramming Definition of terms Cash Inflows - amount of funds flowing into the firm Cash Outflows – amount of funds flowing out of the firm Net Cash Flow equals Cash inflows – cash outflows Assumption for analysis – end of period Funds flow at the end of a given (interest) period1-61 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 62. Unit 1 – General Introduction to Engineering Economics Cash Flow Diagrams A typical cash flow diagram might look like: 1. Draw a time line 0 1 2 … … … n-1 n One time period 2. Show the cash flows Always assume end-of-period cash flows! 0 1 2 … … … n-1 n Cash flows are shown as directed arrows (+ for up or – for down) --- (+) inflow; (-) outflow1-62 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 63. Unit 1 – General Introduction to Engineering Economics 9 Course Assumptions Fallacy of linearity Show me a linearity in nature! Pointy-Haired-Boss and St Dilbert PHB e.g. One woman creates a baby in 9 months Nine women create one in 1 month! Assumption of homo economicus1-63 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 64. Unit 1 – General Introduction to Engineering Economics Guestimation Engineers must do this all the time How many dogs are there in Canada? Interpolation si; extrapolation non! Rule-of-six Estimation accuracy Estimation of SD1-64 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 65. Unit 1 – General Introduction to Engineering Economics Rule of 72: Estimating Doubling Time Common question: Estimate the number of time periods it takes for a cash flow to double in size Given an interest rate i% per period The approximate time n for an investment at time t = 0 to double in value is given by: n = 72/i e.g., $10,000 at 7% per year doubles to $20,000 in 10.3 years1-65 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 66. Unit 1 – General Introduction to Engineering Economics Economists you should Know Adam Smith (invisible hand man) Karl Marx (boo-hiss) Alfred Marshall (2 blades of the scissors) John Maynard Keynes (when in doubt, SPEND) Milton Friedman (Chicago - yea) Paul Samuelson (ol’ guns and butter) Ben Bernanke (chair of the US Fed) Paul Krugman (contrarian)1-66 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco
    • 67. Unit 1 – General Introduction to Engineering Economics Chapter Summary Engineering Economy – application of economic factors and criteria to evaluate alternatives Applies the time value of money Application of economic equivalence Introduction of the MARR Cash flow estimation Modeling – cash flow diagrams Difficulties in estimation Perspectives – viewpoints taken1-67 2013-I-01 Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco