Question

Completely and thoroughly explain how the concepts of Engineering Economy could be used to help a construction contracting company decide on whether they should invest in new equipment. You will need to include more information than what is presented in the lecture transcript for Engineering Economy.

Answer 1

The decision to invest is an engineering economics concept.

This is because when an investment decision is to be made, it is important to calculate the present worth of the future expected cash flows.

The decision is to be made based on present worth analysis.

If the net present value is positive, then only the investment must be made, otherwise not.

Engineering economics analysis helps here by using concepts of calculation of net present value of future costs and benefits.

Formula to be used:

NPV = CF0/(1+r) + ... + CFn/(1+r)n

Where, CF is net cash flow each year

r is interest rate or discount rate