Conference Session

Frontiers in Engineering Economy

Collection

2009 Annual Conference & Exposition

Authors

Neal Lewis, University of Bridgeport; Ted Eschenbach, TGE Consulting; Joseph Hartman, University of Florida

Tagged Divisions

Engineering Economy

call option.Real options analysis is based on the same mathematics, but a new set of definitions: C value of a deferral (or delay) option S0 present value of the future cash flows ф(dx) cumulative standard normal distribution of the variable dx X project cost r risk-free interest rate T time to option expiration σ volatility of the project’s rate of returnUnfortunately, the translation from financial options to real options adds several layers ofambiguity. In determining the present value of the future cash flows (S0), what interest rate andwhat compounding technique should be used? In determining volatility, what method should beused? The answers depend on where you

Conference Session

Frontiers in Engineering Economy

Collection

2009 Annual Conference & Exposition

Authors

Robert Lundquist, Ohio State University

Tagged Divisions

Engineering Economy

investment by small businesses.Taxation of Corporate IncomeIn order to do economic analysis of a project using after-tax cash flows one must firstdetermine the before-tax cash flows and the amount of tax paid each year. This caninclude both State and Federal Taxes on income of the corporation. The use of tax tablesis relatively straightforward; it is finding the portion of income that is taxable in any yearthat makes this a complex subject. While it might seem that the calculation should beginwith the before-tax cash flow, not all of that amount, on either the revenue or expenditureside, is treated the same way for tax purposes. Cash flows resulting from the purchase orsale of capital assets must be excluded from the before-tax cash flows to find

Conference Session

Frontiers in Engineering Economy

Collection

2009 Annual Conference & Exposition

Authors

Philip Brach, University of the District of Columbia; Ahmet Zeytinci, University of the District of Columbia; Pradeep Behera, University of the District of Columbia

Tagged Divisions

Engineering Economy

wide-spread impact on engineering projects, particularly public works. Compounding thissituation is the already inadequate funding for addressing the rebuilding of the nation’s aginginfrastructure.With the thrust to give more consideration to the social impact of engineering works and theimportance of inculcating these aspects into engineering education, this paper articulates apossible case study that could incorporate economy principles and a national fiscal problem intothe engineering curriculum in either an economics course or a senior capstone or ethics course.Using a subject from current events can demonstrate to students how engineering economicprinciples can be used to assess public policy alternatives. An ancillary aspect of this

Conference Session

Advances in Engineering Economy Pedagogy

Collection

2009 Annual Conference & Exposition

Authors

Abhijit Gosavi, Missouri University of Science and Technology

Tagged Divisions

Engineering Economy

underlying revenuemanagement are rooted in operations research, they can certainly be taughtto engineering students. It took a long time for supply chain managementto make its way from business schools to engineering schools, andengineering professors have mixed feelings about the fact that it took sucha long time. It will be interesting to see if revenue management follows asimilar route, and if it ever does how long it takes to make this journey.An outline of the course that was taught in an engineering department,along with a description of the course contents, will be presented. Whatthe instructor learned while teaching the course will also be described. Inaddition, specific areas that were treated in detail and the projects providedfor students

Conference Session

Advances in Engineering Economy Pedagogy

Collection

2009 Annual Conference & Exposition

Authors

John Ristroph, University of Louisiana, Lafayette

Tagged Divisions

Engineering Economy

wide range of projects. This is crucial to setting the discount rate, par-ticularly in smaller companies that still use payback or similar measures. A concise coverage canuse Thuesen’s approach5 of: • explaining the investment opportunities curve of capital budgeting, and • noting that investments with higher internal rates of return tend to be selected first, • so differences among mutually exclusive alternatives generally increase or decrease funds available to marginal projects having an internal rate around MARR, Page 14.552.6 • and then showing that selecting the alternative