Engineering Economy

General characterization

Prerequisites

- To be familiar with the terminology and accounting concepts of balance sheet and income statement;

- Ability to understand and interpret financial and economic information for use in decision making

Bibliography

Azevedo, R. and Nicolau, I., "Elementos de Cálculo Financeiro", Rei dos Livros, Lisboa, 1983.

Blank, L. T. and Tarquin, A. J., "Engineering Economy", Macgraw-Hill Editions-Industrial Engineering Series, Singapore, 1998.

Fernandes, L.S., "Noções Fundamentais de Cálculo Financeiro", Imprensa Nacional- Casa da Moeda, E.P., Lisboa, 1985.

Nabais, C. F., "Cálculo Financeiro", 1ª Edition, Editorial Presença, Lisboa, 1989.

Oliveira, J. N., "Engenharia Económica: uma abordagem às decisões de investimento", Editora Mcgraw-Hill do Brasil Lda., S. Paulo, 1982.

Sullivan, W. G., Elin M. W. and James T. L. (2006). Engineering Economy, 13th Edition. New Jersey: Pearson Prentice Hall, Inc. 

White, J., Agee, M:H: e Case, K:E:, "Principles of Engineering Economics Analysis", Editions J. Wiley & Sons, New York, 1989

Matias, R. (2018) Cálculo Financeiro - Teoria e Prática. 6aEdição. Lisboa: Escolar Editora.

Teaching method

In order to facilitate the development of competencies, this course use different pedagogical approaches. 

- Lectures;

- Exercises from Sebenta;

- Exercises/exams from previous years;

- Case studies; 

- Discussion of group projects.

Evaluation method

The evaluation of the curricular unit (CU) consists of two tests (T1 and T2) and / or examination.
The continuous assessment of the CU consists of 2 online tests (T1 and T2). The final grade is calculated using the formula

Final grade = 0.40 T1 + 0.60 T2

For the purposes of calculating the final grade, the mark of each assessment component is rounded to hundredths. The approval of the CU, by continuous assessment, requires a minimum score of 9.5 points, on a scale from 0 to 20, on the weighted average of the two tests.

There is no minimum score for the tests. However, a student will only be entitled to take the 2nd Test (T2) if he has taken the 1st Test (T1) without having dropped out.

If a student has not passed the continuous assessment (by failure or absence), he/she may take the Exam of Appeal. In this case, the final grade will be the exam grade rounded up. Rounding is done to the nearest hundredth with the following interpretation: equal or above 0,50 passes to the next integer (ex: 12,50 = 13 values).

Subject matter

I - Introduction and Mathematics of Finance

1.1. Time Value of Money

1.2.  Interest factors: compound and discount concepts

1.3.  Calculating simple and compound interest

1.4.  Interest rates: Nominal and effective interest rates

1.5.  Equivalence of capital

1.6.  Equivalence between interest rates related to different periods

1.7. Annual interest effective rates (TAE and TAEG) 

1.8.  Rents and loan repayments

1.9. Leasing

1.10. Long term rentals

II - Engineering economics and the process of taking decision

2.1. Cash flow diagram

2.2. Interest formulas relating present and future values

2.3. Compound and discount factors

2.4. Arithmetic and geometric gradients: definition and formulation

III - Investment Analysis: Selection of Alternatives

3.1. Capital investment considerations

3.2. Selection of investment alternatives based on NPV

3.3. Selection of investment alternatives based on cost/benefits analysis

3.4. Selection of investment alternatives based on IRR.  

3.5. Pay-back period

3.6. Cost/benefits analysis. comparing alternatives

IV- Evaluation of Investment Alternatives in Particular Contexts

4.1. Inflation rate

4.2. Depreciation and methods of depreciation

4.3. The influence of taxes and depreciation when comparing investment alternatives

4.4. Comparing analysis in a context of financial restrictions

Programs

Programs where the course is taught: