Professional Documents
Culture Documents
1
ISE 2014 – ENGINEERING ECONOMY
- how to make it
- how to save it
- how to spend it
2
An important objective in ISE 2014 is to create a learning environment in which every student can earn a
“B” or better.
#7 Don’t read the book during tests (test are open book, open notes).
______________
*A College education adds at least $500,000 to your lifetime earnings. Source: New York Times, July 4,
1990.
3
ISE 2014 – CALCULATION OF YOUR
OVERALL SCORE
91 89 90 90 1 91.00 A
4
ISE 2014 – “WE LIVE IN A SEA OF
ECONOMIC DECISIONS”
- Paper or plastic?
- 87-octane or 91-octane?
5
ENGINEERING ECONOMIC ANALYSIS
PROCEDURE (FROM Table 1-1)
6
ISE 2014 – AN EXAMPLE PROBLEM TAKEN FROM AN OLD EXAM
While studying for the Engineering Economy final exam, you and two friends find yourselves
craving for a fresh pizza. You can’t spare the time to pick up the pizza and must have it
delivered. “Pick-Up-Sticks” offers a 1” thick (including toppings), 20” square pizza with your
choice of two toppings for $15 plus 5% sales tax and a $1.50 delivery charge (no sales tax on
delivery charge). “Fred’s” offers the round, deep-dish Sasquatch which is 20 inches in
diameter. It is 1-3/4” thick, which includes two toppings, and costs $17.25 plus 5% sales tax
and free delivery.
(a) What is the problem in this situation? Please state it in a lucid manner.
(b) Systematically apply the seven principles of engineering economy (pp. 4-7) to the
problem you have defined in part (a).
(c) Assuming that your common unit of measure is $ (i.e., cost), what is the better value for
getting a pizza based on the criterion of minimizing cost per unit of volume?
(d) What other criteria might be used to select which pizza to purchase?
(a) One problem involves how to satisfy the hunger of three students--assume a piping hot,
delicious pizza will satisfy this need. (Another problem is to learn enough about
Engineering Economy to pass--or better yet earn an “A” or a “B”--on the final
examination and ace the course. Maybe a pizza will help solve this problem too?)
Let’s use “hunger satisfaction with a pizza” as the problem/need definition.
7
Principle 4 - Use a Common Unit of Measure
Most people use “dollars” as one of the most important measures for examining
differences between alternatives. In deciding which pizza to order, we’ll use a cost-
based metric in part (c).
(c) Finally some numbers to crunch--don’t forget to list any key assumptions that underpin
your analysis to minimize the cost per unit of volume (Principles 1, 3, 3, 4 and 6 are
integral to this comparison).
Assumptions: (i) weight is directly proportional to volume (to avoid a “meringue” pizza
with lots of fluff but meager substance), (ii) you and your study companions will eat the
entire pizza (avoids variable amounts of discarded left-overs and hence difficult-to-
predict cost of cubic inch consumed) and (iii) data provided in the Example Problem are
accurate (the numbers have been confirmed by phone calls).
Analysis:
Therefore, order the pizza from “Fred’s” to minimize total cost per cubic inch.
(d) Typical other criteria you and your friends could consider are: (i) cost per square inch
of pizza (select “Pick-Up-Sticks”), (ii) minimize total cost regardless of area or volume
(select “Pick-Up-Sticks”), and (iii) “Fred’s” can deliver in 30 minutes but “Pick-Up-
Sticks” cannot deliver for one hour because one of their ovens is not working properly
(select “Fred’s”).
8
ISE 2014 – THE WEEKLY SCAM:
CREDIT CARDS
“Too much credit card debt makes you lose control of your
own destiny.” Anon
9
ISE 2014 – SUPPLEMENTAL HOMEWORK #1
Based on your reading of Chapter 1 (and especially Example 1-2), use each of the seven
principles of engineering economy to resolve the following dilemma.
Your brother attends the University of Virginia and expects to graduate this coming December.
He has a job in California that pays $40,000 per year waiting for him, and he must report to
work on January 15, 1999. He has no other job offers available to him.
A potentially tricky decision faces your brother because he owns a small $40,000 house in
Charlottesville, and the housing market is in the doldrums. Two years ago when he
purchased the house, he made a $4,000 cash payment on it. He continues to make $310 per
month mortgage payments. Your brother prefers not to rent the house because of all the
headaches involved. His realtor in Charlottesville says the house can be sold for $34,000
immediately. If your brother wants at least $40,000 for the house, the realtor says it probably
won’t sell for another 15-18 months. The cost of moving to California is estimated to be
$5,000 if your brother uses professional movers. However, he can pack and move himself for
$2,000. Also he plans to rent an apartment in California for $600 per month. He has a pet cat
that is named “Blue,” and your brother will take his cat to California in January.
What should your brother do? Give him advice by using each of the seven principles
discussed in Chapter 1.
10