Engineering Economics, Ethics and Professional Practice
Engineering Economics, Ethics and Professional Practice tests time value of money, project comparison, depreciation, and professional obligations.
Core rules and concepts
- Money has time value: F=P(1+i)^n; P=F/(1+i)^n; for annuities, P=A[(1+i)^n-1]/[i(1+i)^n].
- NPV discounts all cash flows to present at the required rate; accept independent projects with NPV>0. IRR is the rate making NPV=0; incremental analysis is needed for mutually exclusive alternatives.
- Payback ignores cash flows after the cutoff and time value unless discounted. Depreciation allocates cost; it is not a cash flow.
- Ethics: hold public safety paramount, practice only within competence, disclose conflicts, protect confidentiality except where safety or law requires disclosure, and sign only work you supervised or verified.
Worked example
An equipment purchase costs 10,000 now and returns 3,000 per year for five years. At i=10%, the annuity factor is [(1.1)^5-1]/[0.1(1.1)^5]=3.7908. Present worth of returns is 3,000 x 3.7908=11,372. NPV=11,372-10,000=1,372. Since NPV is positive at the 10% required return, the project is acceptable on this criterion. IRR would be slightly above 10%, but NPV is preferred for ranking when scales differ.
Traps
Mixing nominal and effective interest rates, omitting salvage or working capital, using IRR ranking for mutually exclusive projects of different size, and treating ethics as merely legal compliance are common. A conflict of interest must be disclosed even if no harm occurs.