678 Chapter 20 Engineering Economics
introduce you to engineering economics, but keep in mind that we have just scratched the sur-
face! We cannot resist but to end this section with definition of some of these important con-
cepts that you will learn more about them later.Bonds
States, counties, and cities issue bonds to raise money to pay for various projects, such as schools,
highways, convention centers, and stadiums. Corporations also issue bonds to raise money to
expand or to modernize their facilities. There are many different types of bonds, but basically,
they are loans that investors make to government or corporations in return for some gain. When
a bond is issued, it will have amaturity date(a year or less to 30 years or longer),par value(the
amount originally paid for the bond and the amount that will be repaid at maturity date), and
aninterest rate(percentage of par value that is paid to bond holder at regular intervals).Depreciation
Assets (such as machines, cars, and computers) lose their value over a period of time. For
example, a computer purchased today by a company for $2000 is not worth as much in three
or four years. Companies use this reduction in value of an asset against their before-tax income.
There are rules and guidelines that specify what can be depreciated, by how much, and over
what period of time. Examples of depreciation methods include the Straight Line and the
Modified Accelerated Cost Recovery System (MACRS).Life-Cycle Cost
In engineering, the termlife-cycle costrefers to the sum of all the costs that are associated
with a structure, a service, or a product during its life span. For example, if you are designing
a bridge or a highway, you need to consider the costs that are related to the initial definition and
assessment, environmental study, conceptual design, detailed design, planning, construction,
operation, maintenance and disposal of the project at the end of its life span.Summary
Now that you have reached this point in the text
- You should realize that economics plays an important role in engineering decision making.
Moreover, a good understanding of the fundamentals of engineering economics could also
benefit you in better managing your lifelong financial activities. - You should know the relationship among money, time, and interest rate. You should be
familiar with how these relationships were derived. Moreover, you should also know how
to use the engineering economics formulas summarized in Tables 20.7 and 20.8 to solve
problems.
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