ENGR 280 Engineering Economics

Faculty of Engineering
University of Victoria
Fall 2005
 Teaching Group: Instructor

 Dr. Wei Li

 Adjunct Assistant Professor

 Research: Wireless Communication Engineering

 Office: ELW B356

 wli@ece.uvic.ca

 www.ece.uvic.ca/~wli (ENGR280 Home!!!)

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 Teaching Group: Teaching Assistants

 Craig Tipping ctipping@uvic.ca Tutorial and Quiz Group 1

(Students with Last Name A-M )

 Le Yang yangle@ece.uvic.ca Tutorial and Quiz Group 2

(Students with Last Name N-Z )

 Hanfeng Chen hchen@ece.uvic.ca Final Quiz, final mark

 Jing Zhong jzhong@csc.uvic.ca Report, Homepage

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 Introductions

 What Wei will do …..…….

 Text Books
 Lectures and Projects
 Quiz and Tutorial
 Marking Schemes
 Office Hour

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 Wei (We?) will……………

 Work and work smart

hard

 Communicate with teaching group when needed

 Know the required content of the text book
 Practice problems and examples in the text book
 Show up in all Quizzes, Practical Reports
 Keep quiet in classroom
 Relax and have fun

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Text Book
 Engineering Economics in
Canada
 3rd 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.
 Contemporary Engineering Economics: A Canadian
Perspective, Addison Wesley Co. by Park, Porteous,
Sadler and Zuo (1995).
 Engineering Economics, 2nd Canadian Edition,
McGraw Hill Ltd. by Riggs, Bedworth, Randhwa,
and Khan (1997)

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 Lectures and Project
 Classroom Lectures
 Sept. 13, 2005-Dec. 2, 2005
 TWF, 11:30-12:30, ELL168 (ELL 061)
 Slides will be on web www.ece.uvic.ca/~wli
 Practice Problems
 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
 Practical Application: Find a project topic
 Project report, team work !!!
 At least 3, up to 6 students a group
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 Quizzes and Tutorial
 Quizzes and final quiz (all in class) (in two classrooms)
 Based on examples and problems in the text book
 45 minutes long, about 5 problems
 Tutorial (in two classrooms)
 Tutorial will follow the quizzes and cover practice problems
 Extra time will be given for questions in tutorials
 When and where
 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!
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 Marking Scheme

 Practice Problems 00%

 5 quizzes @ 10% each 50%
 Final quiz 25%
 Project Report 25%

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 Office Hours

 In Tutorial
 There will be question and answer time in tutorial

 Other than Tutorial

 Wednesday 3:30-4:20 ELW B356 or B335
 Friday 3:30-4:20 ELW B356 or B335

 Email me before your visit, thanks.

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 Teaching/Studying Method
 Multi-media
 Power point presentation (PDF on Web)
 Email/Web communication

 Important
 Do not miss quizzes

 Submit report on time

 Key to success
 Study the examples and problems in text book
 Report should be complete, practical, and original

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 Website…..

www.ece.uvic.ca/~wli

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Why is This Course Important to You?
 It is required (the rule….)

 Background in economics and finance is an important

part of your education

 Engineering is one of the better paid professions.

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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),
 Put children through college (options for saving money)
 be prepared for retirement:
 Many companies offer tax-deferred savings plans to

employees. How do you pick a good plan or plans?

 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?
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 Key Issues
 Important
 Do not miss quizzes
 Submit report on time

 Key to success
 Study the examples and problems in text book
 Report should be complete, practical, and original

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 Summary
 Getting the idea is important, not the numbers

 Teaching Group is here to help you

5 Quizzes, 1 Final Quizzes, 1 Project

 No copy machine: everything on web

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

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Engineering Economists Answer
 Why do this at all?
 Is there a need for the project?

 Why do it now?
 Can it be delayed? Can we afford it now?

 Why do it this way?

 Is this the best alternative? Is this the optimal

solution?
 Will the project pay?
 Will we run a loss or make a profit?

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 Sample Situation
 Hydro vs. Thermal power
 Hydro:  Thermal
 expensive initially
 far away from load
centres (high
transmission cost)
 no fuel required
 longer life
 no pollution
 less expensive initially
 can be near load
centres
 require fuel
 shorter life
 can cause pollution
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 Other examples

 Buy vs. rent (car, house, equipment)

 Good quality (expensive) but longer life
vs. poor quality (cheap) but shorter life
 car, shoes, computers
 Investments decisions - GIC, RRSP,
Bonds, Stocks and Shares
 Steel vs. concrete bridge
 Capacity expansion problems
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 Choosing the Better Alternative
 Economic analysis conclusions
 Input from
 governments / politicians
 special interest groups
 public consultations
 family, spouse, financial advisor

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4 Steps in Engineering Economics Study

 Define alternatives in physical terms

 Cost and revenue estimates
 All money estimates placed on a comparable basis
 appropriate interest rate used

 time horizon (economic life)

 Recommend choice among alternatives

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Example: Voluntary Retirement Plan
 Marginal tax = 30%
 Allowed to deposit yearly=$9,000
 2 years to retirement
 Invest in the fund with expected return 20%

1. INVEST IN VOLUNTARY RETIREMENT ACCOUNT

before tax = (9,000*1.2*1.2 + 9,000*1.2) = 23,760

after tax = 23,760 *0.7 = $16,632

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 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*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

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 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*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

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