1. ENGR 280 Engineering Economics Faculty of Engineering University of Victoria Fall 2005

2. 2 Teaching Group: Instructor Dr. Wei Li Adjunct Assistant Professor Research: Wireless Communication Engineering Office: ELW B356 wli@ece.uvic.ca www.ece.uvic.ca/~wli (ENGR280 Home!!!) www.ece.uvic.ca/~wli

3. 3 Teaching Group: Teaching Assistants Craig Tipping ctipping@uvic.ca Tutorial and Quiz Group 1 Craig Tipping ctipping@uvic.ca Tutorial and Quiz Group 1 (Students with Last Name A-M ) Le Yang yangle@ece.uvic.caTutorial and Quiz Group 2 Le Yang yangle@ece.uvic.caTutorial and Quiz Group 2 (Students with Last Name N-Z ) Hanfeng Chenhchen@ece.uvic.caFinal Quiz, final mark Hanfeng Chenhchen@ece.uvic.caFinal Quiz, final mark Jing Zhongjzhong@csc.uvic.caReport, Homepage Jing Zhongjzhong@csc.uvic.caReport, Homepage

4. 4 Introductions  What Wei will do …..…….  Text Books  Lectures and Projects  Quiz and Tutorial  Marking Schemes  Office Hour

5. 5 Wei (We?) will……………  Work hard and work smart  Communicate with teaching group when needed  Know the required content of the text book  Practice problems and examples in the text book  Show up in all Quizzes, Practical Reports  Keep quiet in classroom  Relax and have fun

6. 6 Text Book Engineering Economics in Canada 3 rd Edition Niall M. Fraser Elizabeth M. Jewkes Irwin Bernhardt May Tajima University of Waterloo ISBN: 0-13-126957-7 Pearson Education Canada Copyright: 2006

7. 7 Reference Books  Economics: Canada in the Global Environment Michael Parkin and Robin Bade.  Contemporary Engineering Economics: A Canadian Perspective, Addison Wesley Co. by Park, Porteous, Sadler and Zuo (1995).  Engineering Economics, 2nd Canadian Edition, McGraw Hill Ltd. by Riggs, Bedworth, Randhwa, and Khan (1997)

8. 8 Lectures and Project  Classroom Lectures Sept. 13, 2005-Dec. 2, 2005 Sept. 13, 2005-Dec. 2, 2005 TWF, 11:30-12:30, ELL168 (ELL 061) TWF, 11:30-12:30, ELL168 (ELL 061) Slides will be on web www.ece.uvic.ca/~wli Slides will be on web www.ece.uvic.ca/~wli  Practice Problems 5 groups of practice problems will be given 5 groups of practice problems will be given All the problems will be chosen from the text book All the problems will be chosen from the text book Solutions will be given in tutorial classes Solutions will be given in tutorial classes  Project: Group Study Practical Application: Find a project topic Practical Application: Find a project topic Project report, team work !!! Project report, team work !!! At least 3, up to 6 students a group At least 3, up to 6 students a group

9. 9 Quizzes and Tutorial  Quizzes and final quiz (all in class) (in two classrooms) Based on examples and problems in the text book Based on examples and problems in the text book 45 minutes long, about 5 problems 45 minutes long, about 5 problems  Tutorial (in two classrooms) Tutorial will follow the quizzes and cover practice problems Tutorial will follow the quizzes and cover practice problems Extra time will be given for questions in tutorials Extra time will be given for questions in tutorials  When and where Time: announced in class, on the web (might be changed) Time: announced in class, on the web (might be changed) Room: ELL 168 and ELL 061 Room: ELL 168 and ELL 061 Have to skip a quiz? Contact me before you do that! Have to skip a quiz? Contact me before you do that!

10. 10 Marking Scheme  Practice Problems00%  5 quizzes @ 10% each50%  Final quiz25%  Project Report25%

11. 11 Office Hours  In Tutorial There will be question and answer time in tutorial There will be question and answer time in tutorial  Other than Tutorial Wednesday3:30-4:20ELW B356 or B335 Wednesday3:30-4:20ELW B356 or B335 Friday3:30-4:20ELW B356 or B335 Friday3:30-4:20ELW B356 or B335 Email me before your visit, thanks. Email me before your visit, thanks.

12. 12 Teaching/Studying Method  Multi-media Power point presentation (PDF on Web) Power point presentation (PDF on Web) Email/Web communication Email/Web communication  Important Do not miss quizzes Do not miss quizzes Submit report on time Submit report on time  Key to success Study the examples and problems in text book Study the examples and problems in text book Report should be complete, practical, and original Report should be complete, practical, and original

13. 13 Website…..  www.ece.uvic.ca/~wli

14. 14 Why is This Course Important to You?  It is required (the rule….)  Background in economics and finance is an important part of your education  Engineering is one of the better paid professions.

15. 15 Why is This Course Important to YOU?  Buy a car (leasing versus buying, cash or loan, cash or interest discount), home (mortgage: points, interest, duration),  Put children through college (options for saving money)  be prepared for retirement: Many companies offer tax-deferred savings plans to employees. How do you pick a good plan or plans? Many companies offer tax-deferred savings plans to employees. How do you pick a good plan or plans? Many companies offer stock options to employees. Some Intel employees have become millionaires through stock options. What is there to be concerned about in investing in company stock options? Many companies offer stock options to employees. Some Intel employees have become millionaires through stock options. What is there to be concerned about in investing in company stock options?

16. 16 Key Issues  Important Do not miss quizzes Do not miss quizzes Submit report on time Submit report on time  Key to success Study the examples and problems in text book Study the examples and problems in text book Report should be complete, practical, and original Report should be complete, practical, and original

17. 17 Summary  Getting the idea is important, not the numbers  Teaching Group is here to help you  5 Quizzes, 1 Final Quizzes, 1 Project  No copy machine: everything on web

18. 18 What is Engineering Economics?  Subset of General Economics  Not concerned with general economics situations - concerned with project at hand only  Analysis performed by technical professionals (not economists)  Requires advanced technical knowledge in some cases

19. 19 Engineering Economists Answer  Why do this at all? Is there a need for the project? Is there a need for the project?  Why do it now? Can it be delayed? Can we afford it now? Can it be delayed? Can we afford it now?  Why do it this way? Is this the best alternative? Is this the optimal solution? Is this the best alternative? Is this the optimal solution?  Will the project pay? Will we run a loss or make a profit? Will we run a loss or make a profit?

20. 20 Sample Situation  Hydro: expensive initially expensive initially far away from load centres (high transmission cost) far away from load centres (high transmission cost) no fuel required no fuel required longer life longer life no pollution no pollution  Thermal less expensive initially can be near load centres require fuel shorter life can cause pollution n n Hydro vs. Thermal power

21. 21 Other examples  Buy vs. rent (car, house, equipment)  Good quality (expensive) but longer life vs. poor quality (cheap) but shorter life car, shoes, computers car, shoes, computers  Investments decisions - GIC, RRSP, Bonds, Stocks and Shares  Steel vs. concrete bridge  Capacity expansion problems

22. 22 Choosing the Better Alternative  Economic analysis conclusions  Input from governments / politicians governments / politicians special interest groups special interest groups public consultations public consultations family, spouse, financial advisor family, spouse, financial advisor

23. 23 4 Steps in Engineering Economics Study  Define alternatives in physical terms  Cost and revenue estimates  All money estimates placed on a comparable basis appropriate interest rate used appropriate interest rate used time horizon (economic life) time horizon (economic life)  Recommend choice among alternatives

24. 24 Example: Voluntary Retirement Plan  Marginal tax = 30%  Allowed to deposit yearly=$9,000  2 years to retirement  Invest in the fund with expected return 20% 1. INVEST IN VOLUNTARY RETIREMENT ACCOUNT before tax = (9,000*1.2*1.2 + 9,000*1.2) = 23,760 after tax = 23,760 *0.7 = $16,632

25. 25 Voluntary Retirement Plan Voluntary Retirement Plan 2. RECEIVE MONEY AND INVEST IN FUND $9,000 after tax = $9,000*0.7 = $6,300 before tax = (6,300 *1.2*1.2 + 6,300 *1.2) = $16,632 taxable income = 16,632 - 2* 6,300 = $4,032 tax = 4,032*0.3 = $1,210 after tax = 16,632 - 1,210 = $15,422 DIFFERENCE = 16,632 - 15,422 = $1,210 DIFFERENCE = 16,632 - 15,422 = $1,210

26. 26 Voluntary Retirement Plan Voluntary Retirement Plan 2. RECEIVE MONEY AND INVEST IN FUND $9,000 after tax = $9,000*0.7 = $6,300 before tax = (6,300 *1.2*1.2 + 6,300 *1.2) = $16,632 taxable income = 16,632 - 2* 6,300 = $4,032 tax = 4,032*0.3 = $1,210 after tax = 16,632 - 1,210 = $15,422 DIFFERENCE = 16,632 - 15,422 = $1,210 DIFFERENCE = 16,632 - 15,422 = $1,210