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Why Engineering Economy Professors Should Teach Introductory Corporate Finance

Abstract

Both engineering economy and finance focus their introductory courses on the time value of money. Yet, in spite of this shared foundation, those courses are very different. This paper discusses what these differences are, why they occur, and what the disciplines can offer each other. The goal is to help textbook authors and classroom teachers in each field to do a better job of learning from each other. This paper is written from the perspective of an engineering economist with over 30 years of teaching and textbook writing experience, who has recently had his world-view shifted by multiple forays into finance classrooms.

Introduction

The time value of money is the foundation of two fields—engineering economy and finance. Yet how those two fields are presented in their introductory course have a surprisingly small intersection. The basic reason is that engineering economy focuses at the project level, while introductory corporate finance focuses at the firm level. But both courses include the firm and project levels and both include applications of the time value of money to the personal lives of students. This creates the opportunity for an exchange of content, emphases, and approaches that can enrich the classrooms of both fields.

This paper analyzes the similarities and differences of typical engineering economy and finance (1) texts, (2) students, and (3) faculty. For example, most engineering economy texts will have chapters of detailed coverage with 20-year projects that may have different cash flows in every year. In contrast, the typical project in a finance text has a five year life and uniform cash flows. The engineering students are on average better with mathematics, tables of factors, and spreadsheets, but the finance students analyze problems more quickly by using financial calculators.

The textbook authors and classroom teachers in each field have honed their presentations to match their students, their colleagues, and their course goals. Yet they have not done a good job of learning from each other. This paper suggests some mutual lessons. It is written from the perspective of an engineering economist with over 30 years of teaching and textbook writing experience, who has recently had his world-view shifted by multiple forays into finance classrooms.

The paper’s organization starts with an overall comparison, which includes the comparison of exemplar textbooks. The next focus is the similarities between the two fields, which is followed by sections offering lessons first from finance for engineering economy and then vice versa. Appropriate references are included but there is no literature review, because other comparisons of the fields could not be found. The paper closes with a summary that suggests which lessons might offer the most opportunity for improvement in student understanding and capabilities.

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Eschenbach, T. (2010, June), Why Engineering Economy Professors Should Teach Introductory Corporate Finance Paper presented at 2010 Annual Conference & Exposition, Louisville, Kentucky. 10.18260/1-2--16716