A review of: “EXPLOITING CYCLE TIME IN TECHNOLOGY MANAGEMENT”BY GERALD H. GAYNOR McGraw-Hill,Inc., New York, 1993, xvi + 349 pp. ISBN 0-07-023474-4. List $46.50.

Teaching engineering economy at the undergraduate level has changed little over the past century. In fact, it has become stagnant as its focus has turned toward financial mathematics and away from decision analysis. This is seen as a disservice to students who must eventually develop engineering economy studies. This paper provides motivation and suggestions to revitalize the curriculum, including teaching engineering economy in a decision-making context and integrating research advances into the curriculum. From these suggestions, a tested semester outline is presented. In the spirit of this special issue, it is hoped that these suggestions help move the teaching of engineering economy to the “next level” such that we can produce effective decision makers in the critical area of capital investment analysis.     

A review of: “ENGINEERING ECONOMICS” by James L. Riggs,McGraw-Hill Book Company: New York, 1977, 609 pages, $19.50 list.

The relevance of corporate investment decisions lies in their impact on shareholder wealth. It not only depends on the investment project but also on the corporate dynamics that turns it into the sequence of shareholders’ capital contributions, dividends, and gross terminal value that constitutes the shareholders’ investment project (SIP). We develop a model to calculate the SIP cash flows and the values of its interim capitals following the average internal rate of return (AIRR) paradigm. The shareholders’ final value depends on two reinvestment rates that, respectively, capture the returns obtained by the retained cash flows and the dividends reinvested by shareholders. On this basis, we approach the analysis of value creation combining both reinvestment rates in the shareholders’ net present value (SNPV). This model enables us to obtain the AIRR of the SIP and a variant of it, the equity growth rate that embeds the impact of internal and external reinvestment on the shareholders’ final value.     

A review of: “COST ENGINEERING FOR EFFECTIVE PROJECT CONTROL” by Sol A. Ward,John Wiley & Sons,New York,NY, 1992, viii + 227 pp., ISBN 0-471-52851-X. List $54.95.

Our survey of the investor-owned electric utility companies and utility commissions indicates that the use of asset pricing models for estimating the cost of equity is limited in this industry. The respondents cite unfamiliarity with the arbitrage-pricing model as a main reason for not using it. Use of the capital asset pricing model is also less than one would expect. However, deregulation of the industry could create a need for more-precise quantification of risk. In the new environment, utility companies may find asset-pricing models more useful.     

Review of: “ PLANT DESIGN AND ECONOMICS FOR CHEMICAL ENGINEERS ” MAX S. PETERS: McGraw-Hill Book Company,New York, 1958. 511 pp. $11.00

This paper presents a review, some explanations, and some comments on each of the two preceding articles on the above subject. The unit-summation procedure of calculating the depreciation of group properties by the straight-line depreciation method, which was referred to in Part I and Part II of this series, is introduced. Details of its procedure are compared and contrasted with the equal-life group plan in order to show the fundamental similarity between the two procedures, even though the basic premises are not quite the same.

The Szabo-Henter development, explained in Part II of the series and reviewed briefly in this paper, showed what the total accumulated recoupment of the cost of a vintage would be at any age if the forecast of the annual retirements is that they are constant. The equal-life group (unit-summation) procedure was utilized to demonstrate the appropriateness of the mathematics.

In conclusion, the contrasts between the vintage-group technique (often called the “average-life procedure”) and the equal-life group (unit-summation) procedure are amplified.     

A Review of: “ECONOMIC DECISION MODELS FOR ENGINEERS AND MANAGERS” By James L. Riggs McGraw-Hill Book Company 1968 pp.xvi,401 $11.50

This study breaks down the use of capital budgeting procedures between industries. While it is easy to state that the use of capital budgeting analysis has become more sophisticated over the decades, the question remains as to whether different industries have followed the same pattern. Three hundred two Fortune 1,000 companies responded to a survey organized along industry lines. Chi-square independence of classification tests indicated that a null hypothesis of no significant relationship between industry classification and capital budgeting procedures could be rejected in a number of decision-making areas including goal setting, rates of return, and portfolio considerations. Just as industry patterns affect financing decisions (debt vs. equity), they also affect capital budgeting decisions, and this study emphasizes that point.