1. Chapter 1: What Is Engineering Economics? 1

2. A subset of engineering that requires a technical economic analysis, with a goal of deciding which course of action best meets a technical performance criteria and uses scarce capital in a prudent manner. To be a subject to study the theories and techniques of maximizing an efficiency of the usage of the Efficiency= Output Input  Definition of EE Engineering Economics To be defined as a subject of a decision science for a real investment project such as a purchase of machineries & equipments, a process improvement, and a development of a new process & product. 2

3. Identify a problem Determine all possible alternatives Obtain data necessary to analyze Evaluate economically all the alternatives Cutting a steel pannel Steel saw Electric saw Automatic cutting euqipment Initial investment cost Operating expenses Profit, etc. Post Audit NPV AW IRR To post audit the project currently being implemented  Capital Budgeting Process 3

4. Feasibility Study Market Analysis Analyze 1. a market characteristics 2. A supply_demand 3. A market share 4. Estimate demand in future Prod. Tech Analysis Examine 1. Product Characteristics 2. Man-power plan 3. Establish a production plan 4. Estimate a product cost Financial Analysis 1. Estimate a required capital 2. Analyze an in-outcome 3. Prepare financial statements 4. Analyze a cash flows 4. Evaluate profitability  Engineering Economics as Decision Science 4

5. Analysis oriented with a cash flow Investment : a series of actions to take to get more utility of wealth in the future by sacrifycing a current utility of wealth (Traits: uncertainty, irreversibility, and flexibility of investment timing) Sources of Fund i) equity: stocks ii) liability: bonds and term-loan Economic Investment Decision-Making : Engineering Projects A final decision about a firm’s investment is made in a stock market  A Theoretical Evolution of EE 5

6. 6 2015-10-146 Engineering and Economics

7.  The Right Aptitude of An Investment Appraiser Agreement 16Trillion won (without a heavy work for Han & Nakdong) 8Tri 350bil won 2.3 300,000 25.26million ton 24hours Disagreement 50Trillion won (add up the extra costs) 3Tri 665.4Bill won 0.05 380 5.60 million ton 72hours Issues 1.Construction Cost 2.Income of an aggregate sale 3.B/C ratio 4.Creation of Jobs 5.A canal traffic 6.transportation hours 7

8.  A Historical Background of EE  Sumer Period in Methopotamia, Babylon and Assiria(3,000~600 B.C.) (A main transaction was for silver and grains. The silver was used for a provincial government and the grains were used for a central government. The maximum annual interest rates were fixed at 33.33% and 20% for the grains and silver, respectively)  Fibonacci introduced the Arabic numbers to Europe in 1202 with a compound interest rate.  Pacioli published his book in 1494 and suggested some problems regarding to a simple and compound interest rate.  Jean Trenchant first published the interest tables in 1558 in France. (The interest tables were used to calculate the value of a loan with which the cash in and outflows were obviously transacted.)  Wellington first used the interest tables and present value method to economically evaluate the real investment project for installing a railroad in 1887.  Pennel(1914), Deventer(1915), Goldman(1920), Fisher(1915), Grant(1930)  EE Committee(1936), The Engineering Economist(1955 by Lesser at SIT

9. 9  Prin. 1: The value of 10,000 won today be equivalent to the value of 20,000won tomorrow.  Prin. 2: Consider only the differences in the cash flows.  Prin. 3: A marginal income must be greater than a marginal cost.  Prin. 4: Risk is accompanied with Return.  4 Principles of EE 9

10.  Investment must be exploited to maximize the quality of human beings’ life as much as possible  Investment is not a linkage to simply transfer one’s income to other’s 10