ENGR 280 Engineering Economics Faculty of Engineering University

ENGR 280 Engineering Economics Faculty of Engineering University of Victoria Fall 2005

Teaching Group: Instructor l Dr. Wei Li l Adjunct Assistant Professor l Research: Wireless Communication Engineering l Office: ELW B 356 l wli@ece. uvic. ca l www. ece. uvic. ca/~wli (ENGR 280 Home!!!) 2

Teaching Group: Teaching Assistants l Craig Tipping ctipping@uvic. ca Tutorial and Quiz Group 1 (Students with Last Name A-M ) l Le Yang yangle@ece. uvic. ca Tutorial and Quiz Group 2 (Students with Last Name N-Z ) l Hanfeng Chen hchen@ece. uvic. ca l Jing Zhong Final Quiz, final mark jzhong@csc. uvic. ca Report, Homepage 3

Introductions Ø What Wei will do …. . ……. Text Books Ø Lectures and Projects Ø Quiz and Tutorial Ø Marking Schemes Ø Office Hour Ø 4

Wei (We? ) will…………… Ø Work hard and work smart Ø Communicate with teaching group when needed Ø Know the required content of the text book Ø Practice problems and examples in the text book Ø Show up in all Quizzes, Practical Reports Ø Keep quiet in classroom Ø Relax and have fun 5

Text Book l l Engineering Economics in Canada 3 rd Edition Niall M. Fraser Elizabeth M. Jewkes Irwin Bernhardt May Tajima University of Waterloo ISBN: 0 -13 -126957 -7 Pearson Education Canada Copyright: 2006 6

Reference Books Economics: Canada in the Global Environment Michael Parkin and Robin Bade. Ø Contemporary Engineering Economics: A Canadian Perspective, Addison Wesley Co. by Park, Porteous, Sadler and Zuo (1995). Ø Engineering Economics, 2 nd Canadian Edition, Mc. Graw Hill Ltd. by Riggs, Bedworth, Randhwa, and Khan (1997) Ø 7

Lectures and Project Ø Classroom Lectures l l l Ø Practice Problems l l l Ø Sept. 13, 2005 -Dec. 2, 2005 TWF, 11: 30 -12: 30, ELL 168 (ELL 061) Slides will be on web www. ece. uvic. ca/~wli 5 groups of practice problems will be given All the problems will be chosen from the text book Solutions will be given in tutorial classes Project: Group Study l l l Practical Application: Find a project topic Project report, team work !!! At least 3, up to 6 students a group 8

Quizzes and Tutorial Ø Quizzes and final quiz (all in class) (in two classrooms) l l Ø Tutorial (in two classrooms) l l Ø Based on examples and problems in the text book 45 minutes long, about 5 problems Tutorial will follow the quizzes and cover practice problems Extra time will be given for questions in tutorials When and where l l l Time: announced in class, on the web (might be changed) Room: ELL 168 and ELL 061 Have to skip a quiz? Contact me before you do that! 9

Marking Scheme Ø Practice Problems Ø 5 quizzes @ 10% each Ø Final quiz Ø Project Report 00% 50% 25% 10

Office Hours Ø In Tutorial l Ø There will be question and answer time in tutorial Other than Tutorial l Wednesday Friday l Email me before your visit, thanks. l 3: 30 -4: 20 ELW B 356 or B 335 11

Teaching/Studying Method Ø Multi-media Power point presentation (PDF on Web) l Email/Web communication Ø Important l Do not miss quizzes l Submit report on time Ø Key to success l l l Study the examples and problems in text book Report should be complete, practical, and original 12

Website…. . Øwww. ece. uvic. ca/~wl i 13

Why is This Course Important to You? Ø It is required (the rule…. ) Ø Background in economics and finance is an important part of your education Ø Engineering is one of the better paid professions. 14

Why is This Course Important to YOU? Buy a car (leasing versus buying, cash or loan, cash or interest discount), home (mortgage: points, interest, duration), Ø Put children through college (options for saving money) Ø be prepared for retirement: l Many companies offer tax-deferred savings plans to employees. How do you pick a good plan or plans? l Many companies offer stock options to employees. Some Intel employees have become millionaires through stock options. What is there to be concerned about in investing in company stock options? Ø 15

Key Issues Ø Important Do not miss quizzes l Submit report on time Ø Key to success l l l Study the examples and problems in text book Report should be complete, practical, and original 16

Summary Ø Getting the idea is important, not the numbers Ø Teaching Group is here to help you Ø 5 Quizzes, 1 Final Quizzes, 1 Project Ø No copy machine: everything on web 17

What is Engineering Economics? Ø Subset of General Economics Ø Not concerned with general economics situations - concerned with project at hand only Ø Analysis performed by technical professionals (not economists) Ø Requires advanced technical knowledge in some cases 18

Engineering Economists Answer Why do this at all? l Is there a need for the project? Ø Why do it now? l Can it be delayed? Can we afford it now? Ø Why do it this way? l Is this the best alternative? Is this the optimal solution? Ø Will the project pay? l Will we run a loss or make a profit? Ø 19

Sample Situation n Hydro vs. Thermal power Ø Hydro: l l l expensive initially far away from load centres (high transmission cost) no fuel required longer life no pollution Ø Thermal l l less expensive initially can be near load centres require fuel shorter life can cause pollution 20

Other examples Ø Buy vs. rent (car, house, equipment) Ø Good quality (expensive) but longer life vs. poor quality (cheap) but shorter life l car, shoes, computers Ø Investments decisions - GIC, RRSP, Bonds, Stocks and Shares Ø Steel vs. concrete bridge Ø Capacity expansion problems 21

Choosing the Better Alternative Ø Economic analysis conclusions Ø Input from l l governments / politicians special interest groups public consultations family, spouse, financial advisor 22

4 Steps in Engineering Economics Study Define alternatives in physical terms Ø Cost and revenue estimates Ø All money estimates placed on a comparable basis l appropriate interest rate used l time horizon (economic life) Ø Recommend choice among alternatives Ø 23

Example: Voluntary Retirement Plan Marginal tax = 30% Ø Allowed to deposit yearly=$9, 000 Ø 2 years to retirement Ø Invest in the fund with expected return 20% Ø 1. INVEST IN VOLUNTARY RETIREMENT ACCOUNT before tax = (9, 000*1. 2 + 9, 000*1. 2) = 23, 760 after tax = 23, 760 *0. 7 = $16, 632 24

Voluntary Retirement Plan 2. RECEIVE MONEY AND INVEST IN FUND $9, 000 after tax = $9, 000*0. 7 = $6, 300 before tax = (6, 300 *1. 2 + 6, 300 *1. 2) = $16, 632 taxable income = 16, 632 - 2* 6, 300 = $4, 032 tax = 4, 032*0. 3 = $1, 210 after tax = 16, 632 - 1, 210 = $15, 422 DIFFERENCE = 16, 632 - 15, 422 = $1, 210 25

Voluntary Retirement Plan 2. RECEIVE MONEY AND INVEST IN FUND $9, 000 after tax = $9, 000*0. 7 = $6, 300 before tax = (6, 300 *1. 2 + 6, 300 *1. 2) = $16, 632 taxable income = 16, 632 - 2* 6, 300 = $4, 032 tax = 4, 032*0. 3 = $1, 210 after tax = 16, 632 - 1, 210 = $15, 422 DIFFERENCE = 16, 632 - 15, 422 = $1, 210 26