Engineering Economy - Concept Map
Engineering Economy: Decision-Making on Economic Alternatives over Time
Related concepts
Time Value of Money
Sub concepts
- Simple Interest
- Compound Interest
- Present Worth
- Future Worth
- Nominal vs Effective Rates
Relationship to central
Foundation principle underlying all economic calculations
Interest and Compounding
Sub concepts
- Period Interest Rate (i)
- Number of Periods (n)
- Compounding Frequency (m)
- Continuous Compounding
- Effective Annual Rate (EAR)
Relationship to central
Core mechanism for time-value calculations
Annuities and Uniform Series
Sub concepts
- Ordinary Annuity (End-of-Period)
- Annuity Due (Beginning-of-Period)
- Future Worth of Annuity
- Present Worth of Annuity
- Perpetuities
Relationship to central
Methods to evaluate recurring equal payments
Depreciation Methods
Sub concepts
- Straight-Line (SL)
- Sum-of-Years-Digits (SYD)
- Declining Balance (DB)
- Book Value Calculation
Relationship to central
Reduces asset value systematically for accounting and tax purposes
Economic Comparison Methods
Sub concepts
- Present Worth (PW)
- Annual Worth (AW)
- Rate of Return (ROR)
- Payback Period
- Benefit-Cost Ratio (B/C)
Relationship to central
Techniques to select best alternative based on economic merit
Cash Flow Analysis
Sub concepts
- Initial Investment
- Operating Costs
- Salvage Value
- Net Cash Flow
- Cash Flow Diagrams
Relationship to central
Organizes project costs and benefits chronologically
Break-Even Analysis
Sub concepts
- Break-Even Point
- Sensitivity Analysis
- Variable Costs
- Fixed Costs
Relationship to central
Determines point where two alternatives are economically equivalent
Loan and Debt Analysis
Sub concepts
- Loan Principal
- Interest Calculations
- Amortization Schedules
- Effective Interest Rate
Relationship to central
Evaluates financing options and repayment obligations
Concept connections
- Time Value of MoneyCompound InterestCompound interest is the primary mathematical mechanism implementing time-value principles
- Compound InterestPresent WorthPresent worth uses discounting (inverse of compound interest) to bring future values to today
- Annuities and Uniform SeriesTime Value of MoneyAnnuity formulas apply compound interest principles to recurring equal payments
- Depreciation MethodsEconomic Comparison MethodsDepreciation affects taxable income and cash flows used in economic analyses
- Economic Comparison MethodsPresent WorthPresent worth is one of the primary methods for comparing alternative investments
- Economic Comparison MethodsAnnual WorthAnnual worth converts all costs to equivalent annual amounts for easy comparison
- Cash Flow AnalysisPresent WorthPresent worth analysis requires proper organization and timing of all project cash flows
- Break-Even AnalysisEconomic Comparison MethodsBreak-even identifies the point where two alternatives have equal economic merit
- Interest MechanismsNominal vs Effective RatesEffective rate converts nominal rate to true periodic rate for different compounding frequencies
- Loan and Debt AnalysisAnnuities and Uniform SeriesLoan repayments are typically modeled as ordinary annuities with calculated interest
- Rate of ReturnPresent WorthRate of return is found by solving for interest rate where PW equals zero
- Benefit-Cost RatioPresent WorthB/C ratio uses present worth of benefits divided by present worth of costs
- Straight-Line DepreciationDepreciation MethodsStraight-line is the simplest and most commonly used depreciation method
- Sum-of-Years-DigitsAccelerated DepreciationSYD is an accelerated method that front-loads depreciation in early years
- PerpetuitiesAnnuities and Uniform SeriesPerpetuity is a special annuity with infinite number of periods
- Payback PeriodEconomic Comparison MethodsPayback period is a simple but limited method measuring initial recovery time
- Amortization SchedulesLoan and Debt AnalysisAmortization schedules show period-by-period breakdown of principal and interest payments
- Initial InvestmentCash Flow AnalysisInitial investment is the starting point of any project cash flow analysis
- Salvage ValueDepreciation MethodsSalvage value is subtracted from capital cost to determine depreciable amount
- Sensitivity AnalysisBreak-Even AnalysisSensitivity analysis examines how decision changes when key variables vary
Diagrams
Engineering Economy: Complete Concept Hierarchy
Comprehensive mind map showing Engineering Economy as the central concept with eight major branches covering time value principles, interest mechanisms, annuities, depreciation, comparison methods, cash flow, break-even analysis, and financing. Each branch contains related formulas, calculations, and sub-concepts essential for board examination preparation.
Problem-Solving Decision Tree: Selecting Economic Analysis Method
Decision flowchart guiding engineers through the selection of appropriate economic analysis methods based on problem characteristics. Covers identification of time-value vs. annuity vs. depreciation vs. comparison scenarios, with branching logic for specific calculation methods. Essential for board exam problem-solving strategy.
Compound Interest Calculation Procedure: Step-by-Step
Step-by-step procedural flowchart for solving compound interest problems. Includes identification of variables, rate conversions, formula application, calculation steps, and verification methods. Demonstrates how engineers systematically approach time-value calculations required in board examinations.
Depreciation Method Selection and Calculation Process
Flowchart showing depreciation method selection and calculation procedures. Covers straight-line, sum-of-years-digits, and declining-balance methods with example calculations. Includes verification steps to ensure accumulated depreciation equals cost minus salvage value.
Economic Comparison: Present Worth vs Annual Worth Analysis
Flowchart demonstrating present worth and annual worth methods for comparing economic alternatives. Shows calculation procedures, example comparisons, and sensitivity analysis. Essential for evaluating competing projects in civil engineering applications.
Annuity Calculations: Identifying Type and Computing Values
Flowchart guiding identification and calculation of three annuity types: ordinary annuities, annuities due, and perpetuities. Includes step-by-step formula application with worked examples demonstrating future worth and present worth calculations for each type.
Cash Flow Timeline: Construction and Interpretation
Sequence diagram illustrating cash flow timing from year 0 (present) through year n (end of project life). Shows initial investment, recurring operating costs, and salvage value. Demonstrates why timing of cash flows matters in present worth and future worth calculations.
Economic Comparison Methods: Application Frequency in Board Exams
Pie chart showing the approximate distribution of economic comparison method questions in PRC board examinations. Present worth and annual worth together account for 60% of comparison problems, making them highest-priority topics for board preparation.