Economic and Financial Decisions for Engineers

Topics

• Be able to read and prepare major financial statements (in an easier context for the latter); perform financial ratio analyses.
• Be able to perform cost estimation and cost-driven design optimization to prepare income statements and cash flow statements for further economic analysis.
• Apply concepts of time value of money and equivalence factors to compute, by hand and/or by spreadsheets, economic criteria for a given set of cash flows and use them to evaluate economic viability of projects or to choose the best option from among mutually exclusive projects, including the use of benefit-cost ratios to evaluate public sector projects.
• Prepare after-tax cash flows for economic analysis taking into consideration the effects of depreciation, taxes, and inflation on project cash flows.
• Compute cost of capital and perform capital budgeting/allocation to determine an appropriate minimum attractive rate of return (MARR) for use in economic analysis.
• Use decision trees to help make complicated sequential decisions and to estimate value of additional information, as well as to understand the general approach for dealing with multiple criteria such as risk-return tradeoffs.

Official roster learning outcomes