# Engineering Economy & Corporate FinanceePrep Course forUniversity Preparation ##### The same retired NTU professor is acting as the tutor, to both portions of the course. He was trained as an engineer and was a general manager of a corporation before joining the academic world.

Audio:  Intro to Engineering Economy and Corporate Finance ePrep Course

## Engineering Economy and Corporate Finance ePrep Course Contents

### I. Engineering Economy

1 Introduction to Engineering Economy (or Engineering Economics)

1 Introduction

2 The Principles of Engineering Economy

3. Engineering Economy and the Design Process

4 Using Spreadsheets in Engineering Economic Analysis

2 Cost Concepts and Design Economics

1 Cost Terminology

2 The General Economic Environment

3 Cost-Driven Design Optimization

4 Present Economy Studies

5 Case Study—The Economics of Daytime Running Lights

3 Cost-Estimation Techniques

1 Introduction

2 An Integrated Approach

3 Selected Estimating Techniques (Models)

4 Parametric Cost Estimating

5 Case Study—Demanufacturing of Computers

6 Electronic Spreadsheet Modeling: Learning Curve

4 The Time Value of Money

1 Introduction

2 Simple Interest

3 Compound Interest

4 The Concept of Equivalence

5 Notation and Cash-Flow Diagrams and Tables

6 Relating Present and Future Equivalent Values of Single Cash Flows

7 Relating a Uniform Series (Annuity) to Its Present and Future Equivalent Values

8 Summary of Interest Formulas and Relationships for Discrete Compounding,

9 Deferred Annuities (Uniform Series)

10 Equivalence Calculations Involving Multiple Interest Formulas

11 Uniform (Arithmetic) Gradient of Cash Flows

12 Geometric Sequences of Cash Flows

13 Interest Rates that Vary with Time

14 Nominal and Effective Interest Rates

15 Compounding More Often than Once per Year

16 Interest Formulas for Continuous Compounding and Discrete Cash Flows

17 Case Study—Understanding Economic “Equivalence”

5 Evaluating a Single Project

1 Introduction

2 Determining the Minimum Attractive Rate of Retum (MARR)

3. The Present Worth Method

4 The Future Worth Method

5 The Annual Worth Method

6 The Internal Rate of Return Method

7 The External Rate of Return Method

8 The Payback (Payout) Period Method

9 Case Study—A Proposed Capital Investment to Improve Process Yield

10 Electronic Spreadsheet Modeling: Payback Period Method

The complete topic details for Engineering Economy are given here

### II. Corporate Finance

1 The Scope of Corporate Finance

1 appreciate how finance interacts with other functional areas of any business and see the diverse career opportunities available to finance majors

2 describe how companies obtain funding from financial intermediaries and markets and discuss the five basic functions that financial managers perform

3 assess the costs and benefits of the principal forms of business organization and explain why limited liability companies, with publicly traded shares, dominate economic life in most countries

4 define agency costs and explain how shareholders monitor and encourage corporate managers to maximize shareholder wealth.

2 Financial Statement and Cash Flow Analysis

1 understand the key financial statements that companies are required to provide to their shareholders

2 evaluate the company’s cash flows using its financial statements, including the statement of cash flows

3 calculate and interpret liquidity, activity and debt ratios

4 review the popular profitability ratios and the role of the DuPont system in analyzing the company’s returns

5 compute and interpret the price/earnings and market/book ratios

3 The Time Value of Money

1 understand how to find the future value of a lump sum invested today

2 calculate the present value of a lump sum to be received in the future

3 find the future value of cash flow streams, both mixed streams, and annuities

4 determine the present value of future cash flow streams, including mixed streams, annuities and perpetuities

5 apply time-value techniques that account for compounding more frequently than annually, stated versus effective annual interest rates, and deposits needed to accumulate a future sum

4 Valuing Bonds

1 understand how to find the future value of a lump sum invested today

2 calculate the present value of a lump sum to be received in the future

3 find the future value of cash flow streams, both mixed streams, and annuities

4 determine the present value of future cash flow streams, including mixed streams, annuities, and perpetuities

5 apply time-value techniques that account for compounding more frequently than annually, stated versus effective annual interest rates, and deposits needed to accumulate a future sum

6 use time-value techniques to find implied interest or growth rates for lump sums, annuities, and mixed streams, and an unknown number of periods for both lump sums and annuities.

5 Valuing Shares

1 describe the differences between preferred and ordinary shares

2 calculate the estimated value of preferred and ordinary shares using zero, constant and variable growth models

3 value an entire company using the free cash flow approach

4 apply alternative approaches for pricing shares that do not rely on discounted cash flow analysis

5 understand how investment bankers help companies issue equity securities in the primary market

6 be aware of the Australian secondary securities exchange markets in which investors trade shares.

### III. Corporate Finance – Optional Chapters

#### To conserve space, the complete learning objectives for Corporate Finance are given on a separate page

• The Trade-Off Between Risk and Return
• Risk, Return and The Capital Asset Pricing Model
• Options
• Capital Budgeting Process and Decision Criteria
• Cash Flow and Capital Budgeting
• Risk and Capital Budgeting
• Raising Long-Term Financing
• Capital Structure
• Long-Term Debt and Leasing
• Payout Policy
• Financial Planning
• International Investment Decisions
• Cash Conversion, Inventory and Receivables Management
• Cash, Payables and Liquidity Management
• Entrepreneurial Finance and Venture Capital
• Mergers, Acquisitions and Corporate Control
• Insolvency and Financial Distress
• Introduction to Financial Risk Management

## Engineering Economy & Corporate Finance

### Sample Course Materials

##### 1.  Video Lesson (Pricing Assets)

This video lesson teaches the fundamental concept in finance that the price of an asset is the sum of the present values of future cash flows, which in turn is affected by the discount rates.

##### 2. Question and Answer (Opportunity Costs)

Question

Suppose your father has given you a 21st Birthday gift of S\$100,000. You have come up with three options.

1. Buy a new car which you can do without.
2. Invest in a high-tech company that is expected to increase its value by 25% per year, but this option is relatively risky.
3. Invest in a strong and friendly local bank and earns 6.5% return per year with little risk.

(a) If you decide to buy the new car, what is your opportunity cost?

(b) If you invest in the high-tech company, what is your opportunity cost?

(a) If you are a risk taker, your opportunity cost is 25% (i.e. S\$25,000) per year because you forgo that opportunity.

If you are risk averse, your opportunity cost is 6.5% (i.e. S\$6,500) per year because you forgo that opportunity.

(b) Your opportunity cost is 6.5% (i.e. S\$6,500) per year because your next best return is 6.5%.

##### 3. Problem and Solution (Cost Estimation)

Problem:

A foreman supervises A, B, and eight other employees. The foreman states that he spends twice as much time supervising A and half as much time supervising B, compared with the average time spent  supervising his other subordinates. All employees have the same production rate. Based on equal cost per unit production, what monthly salary is justified for B if the foreman gets \$3,800 per month and A gets \$3,000 per month?

Solution:

Let x = average time spent supervising the average employee.

Then the time spent supervising employee A = 2x and the time spent supervising employee B = 0.5x.

The total time units spent by the supervisor is then 2x + 0.5x + (8)x = 10.5x.

The monthly cost of the supervisor is \$3,800 and can be allocated among the employees in the following manner: \$3,800/10.5x = \$361.90 / x time units.

Employee A (when compared to employee B) costs (2x – 0.5x)(\$361.90/x) = \$542.85 more for the same units of production.

If employee B is compensated accordingly, the monthly salary for employee B should be \$3,000 + \$542.85 = \$3,542.85.

### Engineering Economy and Corporate Finance

#### Sample Bonus Materials

##### 1. Video Lesson on Statistics (Percentile)

This short video lesson is about the definition of percentile and how it can be computed.

##### 2. Video Lesson on Physics (Electric Field and Flux)

This short video lesson defines electric flux and how it depends on the orientation of the surface with respect to the electric field.

##### 3. Cross Word Puzzle Solution on Biotechnology ##### 4. Video Lesson on Business Finance (Solving Problem Relating Sales and Fixed Assets)

This problem walk-through discusses the relationship between fixed assets and sales, and how we can use it to determine the amount of additional fixed assets needed for a projected increase in sales.

##### 5. Objective Question on Physics (Conservation of Energy)

Question: An athlete jumping vertically on a trampoline leaves the surface with a velocity of 8.5 m/s upward. What maximum height does she reach?

1.  13 m

2.  2.3 m

3.  3.7 m

4.  0.27 m

5.  The answer can’t be determined because the mass of the athlete isn’t given.

Answer: (3). Once the athlete leaves the surface of the trampoline, only a conservative force (her weight) acts on her. Therefore, the total mechanical energy of the athlete-Earth system is constant during her flight: Kf + Uf = Ki + Ui.

Taking the y = 0 at the surface of the trampoline, Ui = mgyi = 0.

Also, her speed when she reaches maximum height is zero, or Kf = 0.

This leaves us with Uf = Ki, or mgymax = ½ mvi2, which gives the maximum height as

ymax = vi2/2g = (8.5 m/s)2/(2(9.8 m/s2)) = 3.7 m.

##### 6. Glossary on Psychology (Sensation and Perception)

 analgesia Reduction in the sensation of pain in the presence of a normally painful stimulus. cutaneous senses Senses including touch, temperature, pain, and kinesthetic perception that are spread throughout the body. Also called somatosensory systems. dark adaptation The increasing ability to see in the dark as time passes. depth perception Perception of distance, allowing us to experience the world in three dimensions. encoding Translation of the physical properties of a stimulus into a specific pattern of neural activity. feature detectors Cells in the cerebral cortex that respond to a specific feature of an object.
##### 7. Python Programming (Coding “map”)

Code:
def Capitals (n):
if n == ‘Malaysia’:
return “Kuala Limpur”
elif n == “Indonesia”:
return “Jarkata”
elif n == “Thailand”:
return ‘Banglok’

Nations = [‘Malaysia’, ‘Indonesia’, ‘Thailand’]
NationalCapitals = map(Capitals, Nations)
print(list(NationalCapitals))

Output:
[‘Kuala Limpur’, ‘Jarkata’, ‘Banglok’]

#### 8. Economics (Cost Curves and Their Shapes) 1. Rising Marginal Cost

• This occurs because of diminishing marginal product.
• At a low level of output, there are few workers and there is a lot of idle equipment. But as output increases, the lemonade stand (or factory) gets crowded and the cost of producing another unit of output becomes high.

2. U-Shaped Average Total Cost

• Average total cost is the sum of average fixed cost and average variable cost
 ATC = AFC + AVC
• AFC declines as output expands and AVC typically increases as output expands. AFC is high when output levels are low. As output expands, AFC declines pulling ATC down. As fixed costs get spread over a larger number of units, the effect of AFC on ATC falls and ATC begins to rise because of diminishing marginal product and rising AVC.
• Definition of efficient scale: the quantity of output that minimizes average total cost.

3. The Relationship between Marginal Cost and Average Total Cost

• Whenever marginal cost is less than average total cost, average total cost is falling. Whenever marginal cost is greater than average total cost, average total cost is rising.
• The marginal cost curve crosses the average total cost curve at minimum average total cost (the efficient scale).

#### 9. Discrete Mathematics (Proof by Contradiction)

Question: Solution: 