Professional Engineering Economics

Syllabus

1. Engineering Economics and Cost Concepts (6 hours)
   1. Principles of engineering economics
   2. Role of engineers in economic decisions
   3. Direct costs: material costs, labor costs
   4. Overheads: manufacturing overheads, non-manufacturing costs
   5. Period costs and product costs
   6. Cost volume analysis: fixed cost, variable cost, mixed cost, per unit cost
   7. Break-even analysis, opportunity cost, sunk cost, marginal cost
   8. Application of spreadsheet tool for cost analysis
2. Financial Statements (6 hours)
   1. Fundamental equation and terminologies in accounting
   2. Balance sheet
   3. Income statement
   4. Cash-flow statements
   5. Financial ratios and analysis
3. Interest Rate and Economic Equivalence (6 hours)
   1. Time value of money
   2. Simple interest and compound interest
   3. Economic equivalence: single cash-flow, uniform cash-flows, linear gradient series, geometric gradient series, irregular cash-flows
   4. Nominal and effective interest rate
   5. Application of interest table and spreadsheet for economic equivalence analysis
4. Project Evaluation Techniques (12 hours)
   1. Project cash flows
   2. Payback period methods
   3. Net present value (NPV) method
   4. Future value method
   5. Annual equivalent method
   6. Internal rate of return (IRR) method
   7. External rate of return (ERR) method
   8. Project evaluation for mutually exclusive projects
   9. Application of interest table and spreadsheet tools for project evaluation
5. Depreciation (4 hours)
   1. Economic depreciation and accounting depreciation
   2. Useful life and salvage value
   3. Book depreciation methods: straight-line, declining balance, sum-of-years'-digit, units-of-production
   4. Tax depreciation systems in Nepal
   5. Application of spreadsheet for depreciation estimation
6. Income Tax and Discounted Cash-flow Models (3 hours)
   1. Effect of income tax on cash-flows
   2. Tax treatment of gains and losses on depreciable assets
   3. Individual and corporate tax
   4. Development of discounted cash-flows models on spreadsheet tools
7. Project Risk Analysis (4 hours)
   1. Sensitivity analysis
   2. Breakeven analysis
   3. Scenario analysis
   4. Probability concepts and distributions
   5. Risk simulation
   6. Application of spreadsheet tools and add-in for risk analysis
8. Economic Analysis in Public Project (4 hours)
   1. Social costs and benefits
   2. Benefit-cost analysis
   3. Incremental benefit-cost analysis
   4. Application of spreadsheet tools for public sector economic analysis

Practicals

Tutorials (15 hours):

1. Numerical problems on cost concepts
2. Numerical problems on interest rate and economic equivalence
3. Numerical problems on project evaluation techniques
4. Numerical problems on depreciation
5. Numerical problems on income taxes and risk analysis
6. Numerical problems on economic analysis of public projects
7. Case study of any engineering project and group presentation on detailed economic feasibility study report

Evaluation

Final exam questions cover all chapters. Approximate marks distribution (total 60 marks over 45 hours):

1. Engineering Economics and Cost Concepts: 8 marks
2. Financial Statements: 8 marks
3. Interest Rate and Economic Equivalence: 8 marks
4. Project Evaluation Techniques: 16 marks
5. Depreciation and Income Tax and Discounted Cash-flow Models: 10 marks
6. Project Risk Analysis and Economic Analysis in Public Project: 10 marks