Advanced Engineering Economics
Häftad, Engelska, 2021
Av Chan S. Park, Gunter P. Sharp, Chan S. (Auburn University) Park, Gunter P. (Georgia Institute of Technology) Sharp
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Fri frakt för medlemmar vid köp för minst 249 kr.Advanced Engineering Economics, Second Edition, provides an integrated framework for understanding and applying project evaluation and selection concepts that are critical to making informed individual, corporate, and public investment decisions. Grounded in the foundational principles of economic analysis, this well-regarded reference describes a comprehensive range of central topics, from basic concepts such as accounting income and cash flow, to more advanced techniques including deterministic capital budgeting, risk simulation, and decision tree analysis. Fully updated throughout, the second edition retains the structure of its previous iteration, covering basic economic concepts and techniques, deterministic and stochastic analysis, and special topics in engineering economics analysis. New and expanded chapters examine the use of transform techniques in cash flow modeling, procedures for replacement analysis, the evaluation of public investments, corporate taxation, utility theory, and more. Now available as interactive eBook, this classic volume is essential reading for both students and practitioners in fields including engineering, business and economics, operations research, and systems analysis.
Produktinformation
- Utgivningsdatum2021-07-01
- Mått201 x 252 x 38 mm
- Vikt1 361 g
- FormatHäftad
- SpråkEngelska
- Antal sidor816
- Upplaga2
- FörlagJohn Wiley & Sons Inc
- ISBN9781119691969
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- About the Authors viiPreface ixPart 1 Basic Concepts and Tools in Economic Analysis1 Accounting Income and Cash Flow 31.1 What Is Investment? 31.2 The Corporate Investment Framework 41.2.1 The Objective of the Firm 41.2.2 The Functions of the Firm 41.2.3 The Analysis Framework 61.2.4 Accounting Information 61.3 The Balance Sheet 71.3.1 Reporting Format 71.3.2 Cash versus Other Assets 101.3.3 Liabilities versus Stockholders’ Equity 101.3.4 Inventory Valuation 111.3.5 Depreciation 121.3.6 Working Capital 121.4 The Income Statement 131.4.1 Methods of Reporting Income 131.4.2 Reporting Format 131.4.3 Measurement of Revenue 151.4.4 Measurement of Expenses 161.4.5 Retained Earnings, Cash Dividends, and Earnings per Share 161.4.6 Return on Common Equity (ROE) 171.5 The Funds Flow Statement 181.5.1 The Cash Flow Cycle 191.5.2 Basic Relationship 201.5.3 Funds Statement on a Cash Basis 211.5.4 Funds Statement as Working Capital 231.6 Net Income Versus Cash Flows 241.6.1 Deferred Income Taxes 241.6.2 Computing Deferred Income Taxes 241.6.3 Estimating Cash Flows from Income Statement 261.6.4 Use of Cash Flows in Evaluating Investments 261.7 Investment Project and Its Cash Flows 271.7.1 The Project Cash Flow Statement 281.7.2 Cash Flows over the Project Life 29Summary 31Problems 322 Interest Rates and Valuing Cash Flows 362.1 Cash Flow Diagram 362.2 Time Preference and Interest 362.2.1 Time Preference 372.2.2 Types of Interest 372.2.3 Nominal and Effective Interest Rates 392.3 Discrete Compounding 422.3.1 Comparable Payment and Compounding Periods 422.3.2 Noncomparable Payment and Compounding Periods 532.4 Continuous Compounding 552.4.1 Discrete Payments 562.4.2 Continuous Cash Flows 582.5 Equivalence of Cash Flows 602.5.1 Concepts of Equivalence 612.5.2 Equivalence Calculations with Several Interest Factors 622.6 Effect of Inflation on Cash Flow Equivalence 652.6.1 Measure of Inflation 652.6.2 Explicit and Implicit Treatments of Inflation in Discounting 662.6.3 Case Study—Home Ownership Analysis during Inflation 71Summary 74Problems 753 Advanced Cash Flow Modeling Techniques 803.1 Z-Transforms and Discrete Cash Flows 803.1.1 The Z-Transform and Present Value 803.1.2 Properties of the Z-Transform 823.2 Development of Discrete Present Value Models 873.2.1 Extensive Present Value Models 873.2.2 Simplified Present Value Model 903.2.3 Applications of Z-Transforms 903.3 Laplace Transforms and Continuous Cash Flows 963.3.1 Laplace Transform and Present Value 963.3.2 Properties of Laplace Transforms 973.4 Development of Continuous Present Value Models 1023.4.1 Extensive Present Value Models 1023.4.2 Present Values of Impulse Cash Flows 1053.4.3 Extension to Future and Annual Equivalent Models 1063.5 Application of the Laplace Transform 107Summary 109Problems 1104 Developing Project Cash Flows 1134.1 Corporate Tax Rates 1134.1.1 Tax Structure for Corporations 1134.1.2 Depreciation and Its Relation to Income Taxes 1134.1.3 Use of Effective and Marginal Income Tax Rates in Project Evaluations 1154.2 Depreciation Methods 1164.2.1 Depreciation Regulations and Notation 1164.2.2 Book Depreciation Methods 1174.2.3 Tax Depreciation Method 1214.2.4 Multiple-Asset Depreciation 1264.3 Capital Gains and Adjustments to Income Taxes 1264.4 After-Tax Cash Flow Analysis 1284.4.1 Income Statement Approach 1284.4.2 Generalized Cash Flows 1294.4.3 Effects of Depreciation Methods 1314.4.4 Effects of Financing Costs 1344.4.5 Effects of Inflation 1374.4.6 Cash Flow Analysis for Tax-Exempt Corporations 139Summary 140Problems 1405 Selecting a Discount Rate for Project Evaluation 1445.1 Investment and Borrowing Opportunities 1445.1.1 Future Investment Opportunities 1445.1.2 Financing Sources 1465.1.3 Capital Rationing 1475.2 Costs of Capital from Individual Sources 1475.2.1 Debt Capital 1475.2.2 Equity Capital 1545.3 Use of a Weighted-Average Cost of Capital 1575.3.1 Net Equity Flows 1585.3.2 After-Tax Composite Flows 1605.4 Specifying the Weighted-Average Cost of Capital 1615.4.1 Basic Valuation Forms 1615.4.2 Valuation with Debt and Taxes 1635.4.3 The Firm’s Capitalization Rate 1635.4.4 Obtaining a Cutoff Rate 1665.4.5 Other Issues 1675.4.6 Effect of Inflation 168Summary 168Problems 169Part 2 Deterministic Analysis6 Measures of Investment Worth—Single Project 1756.1 Initial Assumptions 1756.2 The Net Present Value Criterion 1766.2.1 Mathematical Definition 1766.2.2 Economic Interpretation Through Project Balance 1806.3 Internal Rate-of-Return Criterion 1826.3.1 Computational Methods 1826.3.2 Classification of Investment Projects 1856.3.3 IRR and Pure Investments 1886.3.4 IRR and Mixed Investments 1906.3.5 Modified Internal Rate of Return 1946.4 Benefit–Cost Ratios 1976.4.1 Benefit–Cost Ratios Defined 1986.4.2 Equivalence of B/C Ratios and PV 1996.5 Payback Period 2006.5.1 Payback Period Defined 2006.5.2 Popularity of the Payback Period 2016.6 Time-Dependent Measure of Investment Worth 2026.6.1 Areas of Negative and Positive Balances 2026.6.2 Investment Flexibility 203Summary 205Problems 2077 Decision Rules for Selecting among Multiple Alternatives 2137.1 Formulating Mutually Exclusive Alternatives 2137.2 Project Ranking Based on Total Investment Approach 2167.2.1 Total Investment Approach 2167.2.2 Consistency Within Groups 2177.2.3 Modification of Criteria to Include Unspent Budget Amounts 2197.3 Incremental Analysis 2207.3.1 Irrelevance of Ordering for PV, FV, AE, and PBN 2207.3.2 Agreement on Increments Between PV and Other Relative Measures 2217.3.3 Alternative Derivations 2217.3.4 Decision Rules for IRR 2227.3.5 A Comprehensive Example for Incremental Analysis 2247.4 Reinvestment Issues 2287.4.1 Net Present Value 2287.4.2 Internal Rate of Return 2307.4.3 Benefit–Cost Ratio 2317.5 Comparison of Projects with Unequal Lives 2327.5.1 Common Service Period Approach 2327.5.2 Estimating Salvage Value of Longer-Lived Projects 2357.5.3 Reinvestment Issues When Revenues Are Known 2397.5.4 Summary Treatment of Unequal Lives 2397.6 Decisions on the Timing of Investments 239Summary 240Problems 2428 Deterministic Capital Budgeting Models 2478.1 The Use of Linear Programming Models 2478.1.1 Description of a Basic Capital Budgeting Problem 2488.1.2 Criterion Function to Be Optimized 2488.1.3 Multiple Budget Periods 2498.1.4 Project Limits and Interdependencies 2498.1.5 LP Formulation of Lorie–Savage Problem 2508.1.6 Duality Analysis 2508.2 Pure Capital Rationing Models 2538.2.1 Criticisms of the PV Model 2548.2.2 Consistent Discount Factors 2558.3 Net Present Value Maximization with Lending and Borrowing 2588.3.1 Inclusion of Lending Opportunities 2588.3.2 Inclusion of Borrowing Opportunities 2598.4 Weingartner’s Horizon Model 2598.4.1 Equal Lending and Borrowing Rates 2598.4.2 Lending Rates Less than Borrowing Rates 2658.4.3 Inclusion of Borrowing Limits Supply Schedule of Funds 2678.4.4 Dual Analysis with Project Interdependencies 2718.5 Bernhard’s General Model 2728.5.1 Model Formulation 2728.5.2 Major Results 2738.6 Discrete Capital Budgeting 2768.6.1 Number of Fractional Projects in LP Solution 2768.6.2 Branch-and-Bound Solution Procedure 2778.6.3 Duality Analysis for Integer Solutions 2798.7 Capital Budgeting with Multiple Objectives 2818.7.1 Goal Programming 2818.7.2 Interactive Multiple-Criteria Optimization 283Summary 284Problems 285Part 3 Stochastic Analysis9 Utility Theory 2959.1 The Concept of Risk 2959.1.1 Role of Utility Theory 2979.1.2 Alternative Approaches to Decision Making 2989.2 Preference and Ordering Rules 2989.2.1 Bernoulli Hypothesis 2989.3 Properties of Utility Functions 3019.3.1 Risk Attitudes 3019.3.2 Relationship between Certainty Equivalent and Risk Premium 3049.3.3 Types of Utility Functions 3049.4 Empirical Determination of Utility Functions 3079.4.1 General Procedure 3079.4.2 Sample Results 3099.5 Mean–Variance Analysis 3109.5.1 Indifference Curves 3109.5.2 Coefficient of Risk Aversion 3129.5.3 Justification of the Mean and Variance Criterion 3129.5.4 Justification of Certainty Equivalent Method 314Summary 317Problems 31810 Probabilistic Cash Flow Analysis—Single Project 32210.1 Measures of Project Risk 32210.1.1 Downside Risk 32210.1.2 How Businesspeople Perceive Risk in Project Evaluation 32310.2 Estimating Values in Probabilistic Terms 32410.2.1 Statistical Moments of a Single Random Variable 32510.2.2 Statistical Moments of Linear Combinations of Random Variables 32810.2.3 Products of Random Variables 33210.2.4 Quotients of Random Variables 33410.2.5 Powers of Independent Random Variables 33510.2.6 General Approximation Formulas 33810.3 Statistical Moments of Discounted Cash Flows 33910.3.1 Expected Net Present Value 33910.3.2 Variance of Net Present Value 34010.3.3 Mixed Net Cash Flows 34310.3.4 Net Cash Flows Consisting of Several Components 34410.3.5 Cash Flows with Uncertain Timing: Continuous Case 34510.3.6 Cash Flows with Uncertain Timing: Discrete Case 35210.4 Probability Distributions of Net Present Value 35510.4.1 Discrete Cash Flows Described by a Probability Tree 35510.4.2 Use of the First Two Statistical Moments 35710.4.3 Use of the First Four Statistical Moments 35810.5 Estimating Risky Cash Flows 35910.5.1 Beta-Function Estimators for Single Cash Flows 35910.5.2 Hiller’s Method for Correlated Cash Flows 36510.6 Measure of Operational Risk 36710.6.1 Value at Risk—Downside Risk Measurements 36710.6.2 How to Calculate the Value at Risk? 36710.6.3 Conditional Value at Risk (CVaR) 371Summary 373Problems 37511 Comparing Risky Projects and Portfolio Optimization Theory 38611.1 Comparative Measures of Investment Worth 38611.1.1 Mean–Variance, E–V 38611.1.2 Mean–Semivariance, E–Sh 38811.1.3 Safety First 39111.2 Stochastic Dominance 39211.2.1 First-Degree Stochastic Dominance 39211.2.2 Second-Degree Stochastic Dominance 39511.2.3 Third-Degree Stochastic Dominance 39911.2.4 Relationship Between Dominance and Mean–Variance Criterion 40211.3 Portfolio Theory 40311.3.1 Efficiency Frontier 40411.3.2 Diversification of Risk 40611.3.3 Full Covariance Model 40711.3.4 Index Model 40811.3.5 Capital Market Theory 40911.4 Discrete Capital-Rationing Models Under Risk 41211.4.1 Hillier’s Method for Correlated Projects 41311.4.2 Stochastic Programming 41411.5 Multiperiod Index Model for Project Portfolio 41511.5.1 Model Structure and Assumptions 41511.5.2 Procedure 41711.6 Uncertainty Resolution 419Summary 421Problems 42312 Risk Simulation 43012.1 An Overview of the Logic of Simulation 43012.1.1 Monte Carlo Sampling 43112.1.2 Using the Simulation Output 43112.2 Selecting Input Probability Distributions 43212.2.1 Selecting a Distribution Based on Observed Data 43212.2.2 Selecting a Distribution in the Absence of Data 43912.3 Sampling Procedures for Independent Random Variables 44112.3.1 Inverse Transformation Techniques 44112.3.2 Other Frequently Used Random Deviates 44412.4 Sampling Procedures for Dependent Random Variables 44612.4.1 Assessment of Conditional Probabilities 44612.4.2 Sampling a Pair of Dependent Random Samples 44712.4.3 Sampling Based on Regression Equation 45012.4.4 Conditional Sampling in the Absence of Data 45512.4.5 Normal Transformation Method 45712.5 Output Data Analysis 46012.5.1 Replication and Precision of Results 46012.5.2 Comparison of Two Projects 46212.6 A Simple Risk Simulation Example 46512.6.1 Decision Problem 46512.6.2 Replication Results 468Summary 469Problems 47013 Decision Analysis and Value of Information 47413.1 Sequential Decision Process 47413.1.1 Structuring the Decision Tree 47413.1.2 Expected Value as a Decision Criterion 47813.2 Obtaining Additional Information 47813.2.1 The Value of Perfect Information 47913.2.2 Determining Revised Probabilities 48113.2.3 Expected Monetary Value after Receiving Sample Information 48613.2.4 Value of the Market Survey 48613.3 Decision Tree and Risk 48713.3.1 Sensitivity Analysis 48713.3.2 Decision Based on Certainty Equivalents 48813.4 Investment Decisions with Replication Opportunities 49013.4.1 The Opportunity to Replicate 49013.4.2 Experiment Leading to Perfect Information 49013.4.3 A Case Example—Flexible Cellular Manufacturing Operation 49113.4.4 Sampling Leading to Imperfect Information 49413.5 Bayesian Inference and Value of Sampling 49513.5.1 Bayesian Inference 49513.5.2 Bayesian Update with a Discrete Prior Distribution 49713.5.3 Bayesian Update with a Continuous Prior Probability Distribution 50013.6 Conjugate Prior Distributions 50313.6.1 Types of Sampling 50313.6.2 Conjugate Distribution for Bernoulli Process 50513.6.3 Conjugate Distribution for Poisson Process 50713.6.4 Conjugate Distribution for Normal Process 50913.6.5 Lognormal Process 51213.7 Terminal Analysis: Opportunity Loss and Value of Perfect Information 51313.7.1 Opportunity Loss Function 51313.7.2 The Expected Value of Sample Information 51513.7.3 Optimal Sample Size 517Summary 518Problems 51914 Basic Options Theory 52714.1 Financial Options Concepts 52714.1.1 Call Options 52814.1.2 Put Options 52914.2 Stochastic Process of Asset Dynamics 53014.2.1 Underlying Asset Price Movement—Geometric Brownian Motion 53114.2.2 Simulated Stock Prices Based on Brownian Motion 53414.2.3 Discrete-Time Price Movement 53514.2.4 How to Determine the Binomial Parameters 53714.3 Upper and Lower Bounds for Option Prices 53914.3.1 Upper and Lower Bounds 53914.3.2 Put–Call Parity 54014.4 Binomial Option Pricing Model 54114.4.1 Option Pricing for a Single-Period Model 54114.4.2 Risk-Neutral Probabilities 54314.4.3 Properties of Option Attributes 54414.4.4 Effects of Dividends 54514.5 Option Pricing for the Multi-Period Binomial Model 54614.6 Pricing an American Option 54814.6.1 Early Exercise for an American Call Option 55014.7 Black–Scholes Model 55014.7.1 Call and Put Options Formulas 55114.7.2 Components of the Black–Scholes Model 55214.7.3 Formal Derivation of the Black–Scholes Formula 55314.7.4 Relationship Between the Binomial Lattice Model and the Black–Scholes Model 55514.8 Dividends and Black–Sholes Model 55614.8.1 Known Dividend Yield 55614.8.2 Known Dollar Dividend 55614.9 Pricing Exotic Options 55714.9.1 Exchange Options—Margrabe Model 55714.9.2 The Geske Model—Compound Option 55814.10 Estimating Volatility for Traded Financial Assets 560Summary 563Problems 56415 Real Options Analysis 56715.1 A New Way of Thinking of Investment Strategy under Uncertainty 56715.1.1 Identify the Level of Uncertainty 56715.1.2 Analytic Tools and Strategies to Resolve Uncertainty 56815.2 What Is the Investment Flexibility? 57215.3 Real Options Valuation with Financial Option Framework 57515.3.1 Basic Modeling Concept 57515.3.2 SNPV Calculation with Black–Scholes Formula 57615.4 Real Call Options Models 57715.4.1 Option to Wait—Delay Options 57715.4.2 Option to Expand—Growth Options 57915.4.3 Research and Development 58015.4.4 Scale-Up Options by Binomial Lattice 58215.4.5 Exchange Option—Delay Options with Stochastic Investment Cost 58415.5 Real Put Options Models 58615.5.1 Option to Abandon 58615.5.2 Option to Switch 58915.5.3 Option to Scale Down 59015.6 Option to Choose 59115.7 Compound Real Options 59415.7.1 Geske Model 59415.7.2 Compound Options with Changing Volatility 59815.7.3 A Four-Phased Compound Option with Varying Volatility—A Case Example 59915.8 Estimating the Implied Project Volatility 60515.9 An Alternative Real Options Valuation Based on the Loss Function Approach 60615.9.1 The Concept of Opportunity Loss Function 60715.9.2 Valuing Real Call Option with the Standardized Loss Function Approach 60715.9.3 Valuing Real Put Option with the Standardized Loss Function Approach 61215.9.4 Determining the Correct Amount of Premium to Pay for Real Options 614Summary 618Problems 61915A Bayesian Real Options Analysis 62515A.1 Real Options Premium and Value of Information 62515A.1.1 Real Options Valuation Based on Linear Payoff Analysis 62515A.1.2 Expected Value of Perfect Information and Its Relation to Option Premium 62615A.2 Option Valuation with Opportunity to Replicate 62815A.2.1 Option Value with Imperfect Information 62915A.2.2 Revised Option Values 63115A.3 Bayesian Compound Option—Delay Real Options with Learning 63215A.3.1 A Conceptual Modeling Framework 63215A.3.2 Effects of Learning 63415A.3.3 Decision to Invest in Phase 1 with Upstream Learning 63415A.3.4 Development of a Learning Real Options Framework 63515A.3.5 Incorporating Bayesian Learning 63615A.3.6 Posterior Properties 63815A.4 A Case Study—Learning Options in Aerospace Industry 63815A.4.1 Background 63815A.4.2 Applying the Decision Model 63915A.4.3 Option Value Based on Posterior Information 64015A.4.4 Economic Interpretation 641Summary 642Part 4 Special Topics in Engineering Economic Analysis16 Evaluation of Public Investments 64716.1 The Nature of Public Activities 64716.2 The Procedure of Benefit–Cost Analysis 64816.2.1 Valuation of Benefits and Costs 64916.2.2 Decision Criteria 65116.3 The Benefit–Cost Concept Applied to a Mass Transit System 65416.3.1 The Problem Statement 65516.3.2 Users’ Benefits and Disbenefits 65616.3.3 Sponsor’s Costs 66216.3.4 Benefit–Cost Ratio for Project 66516.4 Cost–Benefit/Cost-Effectiveness Analyses 66616.4.1 Cost–Benefit Analysis 66616.4.2 Cost-Effectiveness Analysis 66716.5 Risk and Uncertainty in Benefit–Cost Analysis 66716.5.1 Exact Distribution of Benefit–Cost Ratio 66816.5.2 Exact Distribution of Incremental Benefit–Cost Ratio 66916.5.3 Computer Simulation Approach 673Summary 676Problems 67717 Economic Analysis in Public Utilities 68117.1 Utility Firms and Fair Returns 68117.2 Capital Costs for Public Utilities 68217.2.1 Debt and Equity Financing for Public Utilities 68217.2.2 Weighted After-Tax Cost of Capital 68217.2.3 Capital Recovery Cost Based on Book Depreciation Schedule 68317.3 The Revenue Requirement Method 68517.3.1 Assumptions of the Revenue Requirement Method 68517.3.2 Determination of Annual Revenue Requirements 68617.3.3 Effect of Inflation in Revenue Requirements 68917.4 Equivalence of the Present Value and Revenue Requirement Methods 69217.4.1 The A/T Equity Cash Flows and Revenue Requirement Series 69217.4.2 Important Results Regarding the Equivalence of the PV and RR Methods 69417.5 Flow-Through and Normalization Accounting 69617.5.1 Flow-Through Method 69617.5.2 Normalizing Method 698Summary 704Problems 70418 Procedures for Replacement Analysis 70818.1 Quantifying Obsolescence and Deterioration 70818.2 Forecasting Future Data 71318.3 Basic Concepts in Replacement Analysis 71518.3.1 Sunk Costs 71518.3.2 Outsider Point of View 71618.4 Economic Life of an Asset 72118.5 Infinite Planning Period Methods 72418.5.1 No Technology or Cost Changes, AE Method 72418.5.2 Geometric Changes in Purchase Costs and O&M Costs, PV Method 72718.6 Finite Planning Period Methods 73018.6.1 Sensitivity Analysis of PV with Respect to Inflation 73018.6.2 Dynamic Programming Method 73218.7 Building a Data Base 73818.8 Recent Advances in Fleet Replacement Studies 740Summary 741Problems 742Appendix A Discrete Interest Compounding Tables A-1Appendix B Statistical Tables A-29Table B.1 Cumulative Standard Normal Distribution A-29Table B.2 Percentage Points of the χ2 Distribution A-30Table B.3 Standard Normal Distribution Loss Function A-31Index I-1