Overview

For all engineers and practitioners, it is essential to have a fundamental understanding of cost structure, estimating cash flows, and evaluating alternative projects and designs on an economic basis. Engineering Economics for Aviation and Aerospace provides the tools and techniques necessary for engineers to economically evaluate their projects and choices. The focus of this book is on a comprehensive understanding of the theory and practical applications of engineering economics. It explains and demonstrates the principles and techniques of engineering economics and financial analysis as applied to the aviation and aerospace industries. Time value of money, interest factors, and spreadsheet functions are used to evaluate the cash flows associated with a single project or multiple projects. The alternative engineering economics tools and techniques are utilized in separate chapters to evaluate the attractiveness of a single project or to select the best of multiple alternatives. Most of the engineering economics and financial mathematics books available in the market take either a pure theoretical approach or offer limited applications. This book incorporates both approaches, providing students of aviation and industrial economics, as well as practitioners, with the necessary mathematical knowledge to evaluate alternatives on an economic basis.

Full Product Details

Author:   Bijan Vasigh (Embry-Riddle Aeronautical University, USA) ,  Javad Gorjidooz (Embry-Riddle Aeronautical University, USA)
Publisher:   Taylor & Francis Ltd
Imprint:   Routledge
Weight:   1.184kg
ISBN:  

9781138185784

ISBN 10:   1138185787
Pages:   618
Publication Date:   13 December 2016
Audience:   College/higher education ,  Professional and scholarly ,  Tertiary & Higher Education ,  Professional & Vocational
Format:   Paperback
Publisher's Status:   Active
Availability:   In Print  
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Table of Contents

List of Figures List of Tables Preface Foreword by Brian Pearce Foreword by Zane Rowe Foreword by Dr Barry Humphreys CBE Acknowledgments List of Abbreviations 1 Introduction to the Air Transport Industry Airline Industry before Deregulation Airline Industry after Deregulation Airline Profitability Air Transport Industry Aircraft Manufacturers Jet Engine Manufacturers Aircraft Leasing Companies Service Providers (MRO, Ground Handling, Catering) Airports Air Navigation Service Providers (ANSP) Global Distribution System (GDS) and Computer Reservation System (CRS) Freight Forwarders and Integrators Airline Mergers and Bankruptcies Summary Discussion Questions and Problems 2 Foundations of Engineering Economics and Finance Definition of Engineering Economics Interest and Time Value of Money Simple Interest Compound Interest The Connection between Interest Rates and Their Determinations Short-term Interest Rates Long-term Debt and Interest Rates Future Value of a Single Present Amount Present Value of a Single Future Sum Future Value of an Unequal Cash Flow Series The Rule of 72 The Rule of 100 Summary Discussion Questions and Problems 3 Annuities and Gradient Series Annuities or Uniform Series Future Value of an Annuity Annuity of a Future Value Present Value of an Annuity Annuity of a Present Value Amortization and Amortization Schedule Annuity Due Capitalized Cost Arithmetic Gradient Series Present Value of an Arithmetic Gradient Series Annuity of an Arithmetic Gradient Series Future Value of an Arithmetic Gradient Series Geometric Gradient Series Present Value of a Geometric Gradient Series Annuity of a Geometric Gradient Series Future Value of a Geometric Gradient Series Shifted Cash Flow Series Using Spreadsheets for Equivalences Computation Summary Discussion Questions and Problems 4 Nominal and Effective Interest Rates Nominal Versus Effective Interest Rates Calculating Effective Interest Rate Continuous Compounding Effective Rate to Nominal Rate Comparing Compounding Periods and Payment Periods Computing Equivalences Involving Only Single-Amount Factors. Computing Equivalences when Payment Period Equals Compounding Period Computing Equivalences when Payment Period Exceeds Compounding Period Computing Equivalences when Payment Period is Less Than Compounding Period Using Spreadsheets for Effective Rate and Equivalences Computation Summary Discussion Questions and Problems 5 Analysis of Present Worth Measuring Project Cash Flows First Cost (P) Net Annual Cash Flow (NACF) Terminal Cash Flow (TCF) Evaluation of Single Projects Bond Valuation Types of Project Alternatives Mutually Exclusive (ME) Projects Independent Projects (IP) Do-nothing Alternative Evaluation of Mutually Exclusive Equal-life Alternatives Evaluation of Mutually Exclusive Different-life Alternatives Study Period Approach Least Common Multiple or Replacement Chain Approach Capitalized Cost or Equivalent Annual Annuity Approach Evaluation of Independent Projects Using Spreadsheets for Present Worth Computation Life Cycle Costing (LCC) Summary Discussion Questions and Problems 6 Analysis of Annual Worth Motivation for Using Annual Worth Analysis Evaluation of Single Projects Capital Recovery Annuity of Net Annual Cash Flows Evaluation of Mutually Exclusive Projects Annual Worth Analysis of Equal-life Alternatives Annual Worth Analysis of Non-Equal-life Alternatives Evaluation of Independent Projects Annual Worth of Permanent Projects Using Spreadsheets for Annual Worth Computation Summary Discussion Questions and Problems 7 Analysis of Rate of Return Rate of Return Calculation Interpretation of Rate of Return Values Trial and Error Method Rate of Return of Bonds Evaluating Mutually Exclusive Projects Incremental Cash Flows Cost-based Alternatives Revenue-based Alternatives Equal-life Service Requirement Evaluating Independent Projects Complications with Rate of Return Multiple Rates of Return Scenario ROR Reinvestment Rate Assumption Modified Rate of Return Analysis Using Spreadsheets for Rate of Return Computation Summary Discussion Questions and Problems 8 Public Sector Projects and Benefit to Cost Analysis Public Sector versus Private Sector Projects Benefit/Cost Analysis of Single Projects Evaluation of Cost-based Mutually Exclusive Alternatives Evaluation of Benefit-based Mutually Exclusive Alternatives Evaluation of Independent Projects Modified Benefit and Cost Analysis Using Spreadsheets for Benefit/Cost Ratio Computation Summary Discussion Questions and Problems 9 Analysis of Break-even and Payback Period Introduction to Break-even Analysis Elements of Break-even Analysis Break-even Analysis of a Single Project when Interest is Equal to Zero Break-even Analysis between Two Alternatives with Interest Rate of Zero Break-even Analysis of a Single Project with Interest Rate Greater than Zero Break-even Analysis of Mutually Exclusive Alternatives with Interest Rate Greater than Zero Airline Break-even Load Factor Introduction to Payback Period Analysis Conventional Payback Period Analysis Discounted Payback Period Analysis Using Spreadsheets for Break-even Analysis and Payback Periods Summary Discussion Questions and Problems 10 Uncertainty, Risk Analysis, and Simulation Decision Making Probability and Business Decisions Cumulative Probability Distribution Joint Probability Distribution Measuring Risk and Reward Sample Space Expected Return or Mean Variance Standard Deviation Calculating Variance and Standard Deviation Using Spreadsheets Normal Distribution Calculating Normal Distribution Probability Using Spreadsheets Standard Normal Distribution Portfolios Portfolio Beta Capital Asset Pricing Model (CAPM) Security Market Line (SML) Sensitivity Analysis Break-even Analysis Monte Carlo Analysis (Simulation) Summary Discussion Questions and Problems 11 Analysis of Depreciation, Replacement, and Abandonment Introduction Depreciation Methodologies Straight Line Depreciation (SL) Method Declining Balance Depreciation (DB) Modified Accelerated Cost Recovery System (MACRS) Sum-of-the-Years Digits (SYD) Method Comparison of Different Approaches to Depreciation Using Spreadsheets for Depreciation Computations Basics of a Replacement Decision Impairment Abandonment Summary Discussion Questions and Problems 12 Engineering Cost EstimationDefinition of Cost. Fixed Costs (FC) Variable Costs (VC) Total Costs (TC) Cubic Cost Function Marginal Costs (MC) Average Total Cost (ATC) Average Fixed Cost (AFC) Average Variable Cost (AVC) Sunk Costs Opportunity Costs Relationship between Economic and Accounting Cost Cost of Debt Cost of Equity Weighted Average Cost of Capital (WACC) ROIC vs WACC Cost Divisions and Categories Direct Costs Indirect Costs Learning Curve Estimating Costs Cost Estimation Techniques Unit Cost Method Cost Index Method Cost Capacity Equation Cost Factor Method Indirect Cost Estimation and Allocation Airline Cost Structure Operating Costs (OC) Non-operating Costs (NOC) Summary Discussion Questions and Problems 13 Analysis of Financial Statements The Income Statement: Measuring a Firm’s Profits Revenue, Sales, or Income Cost of Goods Sold (COGS) Operating Expenses Depreciation Operating Profit Financial Costs Net Income The Balance Sheet: Measuring a Firm’s Book Value Current Assets Fixed Assets (Non-current Assets) Total Liabilities Current Liabilities Non-current Liabilities Stockholders’ Equity Statement of Cash Flow Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Flow from Financing Activities Measuring Free Cash Flow Common Size Financial Statements Common Size Income Statement Common Size Balance Sheet Summary Discussion Questions and Problems 14 Analysis of Financial Ratios Liquidity Ratios Current Ratio (CR) Quick Ratio (QR) Asset Management Ratios Accounts Receivable Turnover Ratio (ART) Average Collection Period (ACP) Inventory Turnover (ITO) Fixed Asset Turnover Ratio (FAT) Total Asset Turnover Ratio (TAT) Financial Management Ratios Debt Ratio (D/A) Debt to Equity Ratio (D/E) Times Interest Earned Ratio (TIE) Profitability Ratios Gross Profit Margin (GPM) Operating Profit Margin (OPM) Net Profit Margin (NPM) Return on Total Assets (ROA) Return on Equity (ROE) Dividend Ratios Dividend Payout Ratio (DPR) Dividend Yield Market Value Ratios Market to Book Ratio Price–Earnings Ratio (P/E Ratio) DuPont System Ratios Return on Assets (ROA) Return on Equity (ROE) Window Dressing Altman Insolvency Index Key Financial Ratios for the Airline Industry Available Seat Mile (ASM) Revenue Passenger Mile (RPM) Cost per Available Seat Mile (CASM) Revenue per Available Seat Mile (RASM) Revenue per Revenue Passenger Mile (RRPM) or Passenger Yield Average Stage Length (ASL) CASM (Stage Length Adjusted) Average Daily Block Hour Utilization Load Factor (LF) Break-even Load Factor (LFb-e) Summary Discussion Questions and Problems 15 Fundamentals of Decision Theory Decision-making Process Decision Trees Nodes Branches Decision Environments Decisions under Certainty Decisions under Uncertainty Decisions under Risk The Economic Theory of Information Expected Value of Perfect Information (EVPI) EV with PI Queueing Theory Customer Arrivals Arrival Characteristics Waiting Line Characteristics Service Facility Characteristics Cost–Capacity Tradeoff Summary Discussion Questions and Problems Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Glossary Index

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Author Information

Bijan Vasigh is Professor of Economics and Finance in the College of Business at Embry-Riddle Aeronautical University, Daytona Beach, Florida, USA. Javad Gorjidooz is the Chair of the Business Administration Program and Professor of Finance in the School of Business at Embry-Riddle Aeronautical University, Prescott, Arizona, USA.

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