Engineering Economic Analysis

Course Description

ETI 2670 – Engineering Economic Analysis is a 3-credit-hour course designed for students majoring in any engineering or engineering technology discipline. Students learn the basic methods of engineering cost analysis including equivalence, value measurement, interest relationships, and decision-support theory and techniques as applied to capital projects. Various problem-solving methods are used for decision making among multiple alternatives and under conditions of uncertainty. The course bridges technical foundations built in earlier mathematics and science courses with the complex economic decision-making required in upper-level engineering design and systems work.

Topics span the full engineering project life cycle: from assembling cost data and computing cash flows, to applying present-worth, annual-worth, and rate-of-return analyses, to evaluating the impacts of depreciation, taxes, and inflation on engineering investments. Spreadsheet tools (e.g., Microsoft Excel) are integrated throughout to support financial function computations.

Learning Outcomes

Required Outcomes

Upon successful completion of this course, students will be able to:

• Analyze the cost requirements of a specific engineering project and compare the cost impact of alternative designs or approaches.
• Identify criteria to determine the most profitable or cost-effective alternative among competing engineering options.
• Calculate interest (simple, compound, nominal, and effective rates), labor force costs, downtime, and overhead for a given engineering project.
• Compute cash flows through receipts and disbursements at different points in an engineering project cycle and construct cash flow diagrams.
• Apply money-time relationships and equivalence — including present worth (PW), future worth (FW), and annual worth (AW) factors — to evaluate engineering alternatives.
• Perform rate-of-return (ROR/IRR) analysis and apply the Minimum Acceptable Rate of Return (MARR) criterion to accept or reject projects.
• Calculate and explain the impact of depreciation (straight-line, declining balance, MACRS, and depletion methods) on engineering system projects.
• Discuss the types of taxes — on labor, materials, facilities, permits, and licenses — that affect engineering projects and perform basic after-tax economic analysis.
• Use financial analysis techniques and spreadsheet functions to make cost-effective decisions across research, development, and project implementation phases.

Optional Outcomes

Depending on institutional emphasis, students may also be able to:

• Perform benefit/cost (B/C) analysis for public-sector engineering projects.
• Conduct breakeven, sensitivity, and payback analysis to assess project risk thresholds.
• Analyze replacement and retention decisions using economic service life concepts.
• Adjust present-worth and future-worth calculations for the effects of inflation.
• Apply multiple-attribute evaluation methods that incorporate noneconomic factors in alternative selection.
• Evaluate basic concepts of decision making under risk and uncertainty, including expected value and probability distributions.
• Interpret accounting reports, balance sheets, and business ratios as supporting context for engineering economic decisions.

Major Topics

Required Topics

The following content areas are covered at all Florida college offerings of ETI 2670:

1. Foundations of Engineering Economics — role of engineering economy in project decision-making; economic vs. technical criteria; engineering ethics in cost analysis.
2. Cost Elements in Technical Operations — fixed and variable costs; labor, overhead, downtime, and material costs; cost estimation techniques.
3. Interest and the Time Value of Money — simple vs. compound interest; nominal vs. effective interest rates; interest tables and factor notation.
4. Cash Flow Analysis — cash flow diagrams; receipts and disbursements; uniform series, arithmetic gradient, and geometric gradient cash flows.
5. Money-Time Relationships and Equivalence — P/F, F/P, P/A, A/P, and related factors; converting cash flows to equivalent values at different points in time.
6. Present-Worth (PW) Analysis — comparing mutually exclusive alternatives; net present value; least common multiple of lives.
7. Annual-Worth (AW) Analysis — equivalent uniform annual cost (EUAC); capital recovery with return.
8. Rate-of-Return (ROR/IRR) Analysis — internal rate of return; MARR; incremental ROR for comparing alternatives.
9. Depreciation and Depletion — straight-line, declining balance, sum-of-years-digits, MACRS; cost depletion and percentage depletion methods.
10. Taxes and After-Tax Analysis — types of taxes affecting engineering projects; before-tax vs. after-tax study methods; after-tax cash flow computation.
11. Spreadsheet Applications — use of Excel financial functions (NPV, IRR, PMT, FV, PV) to conduct engineering project cost analysis.

Optional Topics

These topics may be included based on course section, instructor, or program emphasis:

• Benefit/Cost Analysis — B/C ratio; public-sector project evaluation; comparison of alternatives on a B/C basis.
• Breakeven and Sensitivity Analysis — breakeven point; payback period; sensitivity of decisions to changes in key parameters.
• Replacement Analysis — defender vs. challenger analysis; economic service life; replacement study over a specified study period.
• Effects of Inflation — real vs. nominal interest rates; inflation-adjusted PW, FW, and AW calculations.
• Capital Budgeting — budget constraints; ranking independent projects; capital rationing decisions.
• Decision Making Under Risk and Uncertainty — expected value; probability distributions; decision trees; risk identification in project cash flows.
• Accounting and Financial Statements — balance sheets; income statements; business ratios as context for engineering economy.

Resources & Tools

• Primary Textbook (commonly adopted): Engineering Economic Analysis, Newnan, Eschenbach & Lavelle (Oxford University Press) — the standard text used at MDC and several Florida state universities for this course number.
• Alternative Textbook: Basics of Engineering Economy, Blank & Tarquin (McGraw-Hill) — widely used at Florida community and state colleges.
• Spreadsheet Software: Microsoft Excel with built-in financial functions (NPV, IRR, PMT, PV, FV, RATE) — required for homework and project assignments.
• Interest Factor Tables: Standard engineering economy compound interest tables (provided in textbook appendices or as course handouts).
• Learning Management System: Canvas — used for assignment submission, course materials, and grade tracking at most Florida colleges.
• Internet Research: Students are expected to locate pertinent cost data and industry benchmarks using credible online sources to support project analyses.

Career Pathways

ETI 2670 provides foundational economic analysis skills directly applicable across engineering technology and industrial systems careers in Florida's growing manufacturing, aerospace, defense, and technology sectors. Graduates with proficiency in engineering economics are well-positioned for roles such as:

• Industrial Engineer / Manufacturing Engineer — optimizing production costs, evaluating capital equipment purchases, and conducting make-or-buy analyses.
• Project Engineer / Project Manager — developing project budgets, assessing ROI on capital projects, and managing cost control throughout the project lifecycle.
• Cost Estimator / Cost Analyst — preparing detailed engineering cost estimates for bids, proposals, and facility planning.
• Quality Control / Continuous Improvement Engineer — performing cost-benefit analysis on process improvement initiatives (Lean, Six Sigma).
• Plant / Operations Manager — making data-driven decisions on facility investments, maintenance scheduling, and resource allocation.
• Systems Engineer — evaluating lifecycle costs and economic trade-offs in complex technical systems.

This course also supports articulation pathways from Florida's A.S. Engineering Technology degree into ABET-accredited B.S. Engineering Technology programs at Daytona State College, Eastern Florida State College, and similar institutions, where engineering economics is a required component. Engineering economics content is covered on the Fundamentals of Engineering (FE) Exam administered by NCEES, making this course directly relevant to students pursuing Professional Engineer (P.E.) licensure in Florida.

Special Information

FE Exam Preparation

ETI 2670 content aligns directly with the Engineering Economics section of the NCEES Fundamentals of Engineering (FE) Exam, which is the first step toward Professional Engineer (P.E.) licensure. Topics covered in this course — including time value of money, present worth, annual worth, rate of return, depreciation, taxes, and uncertainty — are explicitly tested on the FE "Other Disciplines" exam, which is the primary FE pathway for A.S. Engineering Technology graduates in Florida.

A.S. to B.S. Articulation

This course is a standard component of Florida's statewide A.S. Engineering Technology degree framework developed by FLATE (Florida Advanced Technological Education Center). Successful completion supports articulation into ABET-accredited B.S. Engineering Technology programs at multiple Florida state colleges and universities.