Engineering Economics

Course Title: Engineering Economics

Course No: ENCE356

Nature of the Course: THEORY

Semester: 6

Full Marks: 60 + 40

Pass Marks: 24 + 16

Credit Hours: 3

Course Description

This course provides concepts of economic principles and the economic environment at the project, firm, societal, and national levels, enabling students to analyze cause-and-effect relationships and apply economic theories and tools for project selection, equipment replacement, property valuation, and price variation.

Course Objectives

By the end of the course, students will be able to:

Understand economic principles and the economic environment at the project, firm, societal, and national levels, enabling them to analyze cause-and-effect relationships
Apply economic theories and tools for project selection, equipment replacement, property valuation, and price variation
Evaluate alternatives and make informed, economically sound decisions in engineering and business contexts

Course Contents

1. Introduction

2 hrs3 marks

1.1. Micro, macro and engineering economics (History, fundamental principle and application)

1.2. Terminology related to engineering economics

1.3. Economic decision and role of engineers in decision making

1.4. Cash flow and cash flow diagram

2. Market Economics

3 hrs5 marks

2.1. Market, demand, supply and relationship

2.2. Elasticity, application of elasticity and government policies

2.3. Externality and market inefficiency

2.4. Market failure and firm behavior

3. Cost

8 hrs3 marks

3.1. Cost classification

Total, average, fixed, variable, and marginal costs

Direct, indirect, and standard costs

Cash versus book cost, manufacturing and non-manufacturing cost

Sunk cost, opportunity cost, element of cost, life-cycle cost

3.2. Cost estimation and control

4. Time Value of Money

6 hrs8 marks

4.1. Money (Type, functions and time value of money)

4.2. Simple and compound interests (Nominal, effective and continuous compounding)

4.3. Economic equivalence

4.4. Cash flow types (Single, uniform, linear gradient, geometric gradient and irregular)

5. Methods of Economic Analysis

12 hrs16 marks

5.1. Capital budgeting

5.2. Minimum attractive rate of return (MARR)

5.3. Economic analysis of single and multiple projects

Payback period (Simple and discounted)

Equivalent worth (Net present, annual, future and capitalized)

Rate of return (Internal and external)

Public Sector economic analysis (Benefit cost analysis)

Financial and economic analysis

5.4. Weighted average cost of capital (WACC)

5.5. Repeatability assumption and co-Terminated assumptions

5.6. Multiple investment project alternatives (Dependent, independent and contingent)

6. Replacement Analysis

5 hrs6 marks

6.1. Replacement strategies (Asset life and selection of challengers over defenders)

6.2. Economic service life of an asset

6.3. Replacement strategy for asset (Project with finite and infinite planning horizon)

7. Risk Analysis

5 hrs6 marks

7.1. Origin of risk in projects

7.2. Risk analysis of projects (Sensitivity, breakeven and scenario analyses)

7.3. Decision tree

8. Depreciation and Taxes

5 hrs8 marks

8.1. Concept and terminology

8.2. Depreciation calculation (Straight line, declining balance, sinking fund, sum of the year digit and modified accelerated cost recovery methods)

8.3. Tax and corporate income tax

8.4. Economic analysis (After-tax cash flow)

9. Measurement of Nation Income

5 hrs5 marks

9.1. Gross domestic product (Components, real and nominal gross domestic product)

9.2. Unemployment (Measurement, job search, minimum wage law)

9.3. Inflation

Causes, effects and measurement of inflation

Constant and current cash flow

Equivalence calculation under inflation

Inflation controlling measures

9.4. Real and nominal exchange rates, fiscal budget and monetary policy

9.5. Financial statement

Reference Books

1.Mankiw, N. G. (2017). Principles of economics (8th ed.). Cengage Learning.
2.Park C.S. (2016). Contemporary Engineering Economics: Prentice Hall, Inc.
3.McConnell, C. R., Brue, S. L., Flynn, S. M. (2020). Economics: Principles, problems, and policies (22nd ed.). McGraw-Hill Education.

Notes:

This syllabus follows the official BCT curriculum of Tribhuwan University. In case of any doubt or revision, the university's published syllabus shall be considered authoritative. https://ioe.tu.edu.np/pages/computer-engineering-curriculum-structure-2635

Economics