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Engineering Economics by John Charles Lounsbury Fish
Engineering Economics by John Charles Lounsbury Fish
Hard Cover Writing on first page, last page, inside back cover.
311 pages
Copyright 1923
CONTENTS
PREFACE TO SECOND EDITION v
PREFACE TO FIRST EDITION viii
CHAPTER
I. INTRODUCTION 1
II. ANALYSIS OF PROBLEM OF INVESTMENT 6
INTRODUCTION 6
Analysis 6
Choice 6
ANALYSIS OF PROBLEM OF INVESTMENT 8
General Case 9
Irreducible data 15
Special cases 16
PREREQUISITE TO FURTHER ANALYSIS 19
III. INTEREST 20
TIME VALUE OF MONEY 20
SIMPLE INTEREST 20
COMPOUND INTEREST 22
Elements 22
Equivalence 28
Uniform series of payments 30
Comparisons 34
SINKING FUNDS, ANNUITIES, ETC 34
IV. ANALYSIS OF PROBLEM OF INVESTMENT (CONTINUED) 36
ANNUAL DEPRECIATION COST 36
OPERATION COST 39
INTEREST ON CAPITAL 39
INCOME 40
SUMMARY OF ANALYSIS 40
REVIEW AND PREVIEW 41
V. PRELIMINARY ANALYSIS OF FIRST COST AND OF OPERATION COST 44
FIRST COST 44
OPERATION COST 54
VI. PRACTICAL ANALYSIS OF FIRST COST 56
FIRST COST 56
MATERIALS COST 60
LABOR COST 62
UNIT COST 63
OTHER ANALYSES OF FIRST COST 65
VII. PRACTICAL ANALYSIS OF FIRST COST (CONTINUED) 66
PROCEDURE IN ESTIMATING 66
In general 66
Typical procedure for estimating in detail 68
Abbreviated procedures 71
Use of analysis diagram 76
VIII. PRACTICAL ANALYSIS OF FIRST COST (CONCLUDED) 78
PROCEDURE IN ESTIMATING (CONCLUDED) 78
Prices, wage rates, man-hours 78
Bringing old cost data up to date 80
Aids in estimating 83
IX. BUSINESS UNITS 86
USE OF BORROWED CAPITAL 86
THE INDIVIDUAL BUSINESS 89
THE PARTNERSHIP 91
X. BUSINESS UNITS (CONTINUED) 94
PRIVATE CORPORATION 94
Creation and organization 94
Ownership 97
Control and management 99
How the private corporation raises capital 102
Financial condition 106
XI. BUSINESS UNITS (CONCLUDED) 108
PUBLIC SERVICE CORPORATION 108
PUBLIC CORPORATION 110
PROMOTION 115
XII. IRREDUCIBLE DATA OF PROBLEM OF INVESTMENT 121
IRREDUCIBLE QUALITIES OF INVESTMENT 121
CONDITIONS AFFECTING IRREDUCIBLE QUALITIES 122
Investor's financial relation to business unit 122
Type of business unit 123
Individuality of business unit 125
Type of opportunity 125
Trend of conditions 126
XIII. BUSINESS STATISTICS 129
FINANCIAL STATEMENTS 129
Balance sheet 129
Income sheet 136
Supplementary statements 139
Account 140
Ledger 145
XIV. BUSINESS STATISTICS (CONCLUDED) 149
COST KEEPING 149
COMPARISONS 158
XV. MISCELLANEOUS FORECASTS 162
OUTPUT, LIFE, PERIOD OF SERVICE 162
INTEREST RATE 164
POPULATION 166
EARNINGS 168
PRICES AND WAGE RATES 169
XVI. VALUATION 171
FAIR VALUE 171
Salvage, scrap, and wearing value. Depreciation 171
Price fixed by buyer and seller 175
Fair price fixed by third party chosen by buyer and seller 175
Fair price fixed by court or commission 175
XVII. VALUATION (CONCLUDED) 180
FORMULAS FOR DEPRECIATION AND SALVAGE VALUE 180
Derivation of formulas 180
Comparison of formulas 191
XVIII. ERRORS IN ESTIMATING 199
SIMPLE AND COMPOUND ESTIMATES 199
COMPENSATION OF ERRORS 201
ERROR IN FORECASTING FUTURE COST 203
XIX. ENGINEERING REPORTS 207
INTRODUCTION 207
THE WRITTEN REPORT 210
General principles 210
Specifications for a report 213
Procedure for preparing a report 216
SUMMARY 217
APPENDICES
APPENDIX
A. SPECIMEN PAPERS 219
ARTICLES OF INCORPORATION 219
CERTIFICATE OF INCORPORATION 221
BY-LAWS 222
B. TABLES OF FORMULAS AND OF VALUES 228
C. BIBLIOGRAPHY 269
D. QUESTIONS AND PROBLEMS 278
INDEX 299
PREFACE TO THE SECOND EDITION
The first edition of "Engineering Economics" dealt with economic choice of structure. Experience has shown that there were omitted from that edition some pertinent factors which are at times important. A revision of the text was undertaken to remedy the omission. It was found, however, that in the plan of the old book there was no logical place for the missing factors. This difficulty suggested that the fundamental problem of engineering economics is not choice of structure, but, rather, choice of investment. The idea was put to test. The factors disclosed by analyzing the problem of investment choice were found to include those omitted from, as well as those included in, the first edition. Thus it became clear that the new edition in order to be satisfactory must be, not a revision of the old in the usual sense, but a new writing that should begin with the problem of investment and follow the path indicated by the analysis.
As a result, this is more than a new edition: it is a new text.
The present book opens with a picture of the engineer in the work of the world. The picture shows that engineering knowledge, unlike medical and legal knowledge, can be converted into community service only through the medium of business, and that consequently the engineer's professional success and contribution to public welfare depend in a great measure on his understanding of the business side of engineering-of engineering economics.
The text proper sets out with the analysis of the investment problem, which analysis soon discloses two classes of data that influence choice of investment: (1) data from which yield or profit can be calculated, and (2) data which cannot be incorporated in the calculations: in short, reducible and irreducible data.
The calculation of yield or profit involves the elements of compound interest and sinking funds. For this reason, a practical method of making the calculation is merely outlined at first; next the principles of compound interest and sinking funds are explained; and then the method of calculation is presented in detail.
The work of evaluating the reducible data, commonly called "estimating," being no less important than the reduction of such data, receives extended treatment.
Among the more important irreducible data of investment are the characteristics of business units. Business units, therefore, including private and public corporations, together with their organization, control, management, and ways of raising capital, are sketched with some particularity. Other important classes of irreducible data are also discussed.
First principles of financial statements and cost keeping are developed from common experience. There is included an elementary treatment of valuation of public service corporations, followed by the derivation and comparison of several depreciation formulas.
The text closes with a chapter on engineering reports, and is followed by appendices containing specimen incorporation papers, numerous tables of formulas and of values, a bibliography, and an extensive collection of questions and problems.
For the convenience of the reader certain changes in the mechanical features have been introduced in this second edition, as follows: (1) chap. i begins with section , chap. ii with , chap. iii with , and so on, so that the chapter in which the section lies is indicated by the number of hundreds in the section number; (2) each equation, table, and figure is designated by the number of the section in which it makes its first appearance; (3) key words in the running text are set in bold-faced type, in lieu of formal side-heads; (4) numerous diagrams summarize the results of analyses; and (5) minor paragraphs are set off by smaller type.
Other differences between the two editions may be discerned by comparing the present table of contents with the following list of chapter heads of the old edition: (i) the problem of economic selection, (ii) interest, (iii) sinking funds, (rv) first cost, (v) salvage value, (vi) elements of yearly cost of service, (vii) estimating, (vin) basis of economic comparison, (ix) procedure for economic selection, and (x) examples of economic selection.
This edition, like the former, is designed to serve as a text for study and as a manual for the office.
While the book is written primarily for student and practitioner of engineering, it should be of value to the student of business and to the business man, because it deals with a fundamental business problem, the problem of investment choice.
For the rest, the new text must speak for itself.
Finally, I take pleasure in introducing the reader to a number of individuals who have given a hand to the work. For critical examination of manuscript I am indebted to my colleagues: J. B. Canning, assistant professor of Economics; T. J. Hoover, dean, School of Mining and Metallurgy; C. A. Huston, dean, School of Law; S. S. Seward, Jr., associate professor of English; and A. C. Whittaker, professor of Economics. I have to acknowledge a similar indebtedness to J. B. Cox, civil engineer, Paia, Maui, T. H.; Williston Fish, general manager, Chicago Surface Lines; Job Fish, Jr., general works manager, Otis Elevator Company; H. H. Hall, chief engineer, Standard Oil Company (of California); Mrs. Dare Stark McMullin, San Rafael, California; and Col. H. H. Whitney, United States Army. Valuable suggestions have been received also from A. E. Berriman, chief engineer, The Daimler Company, Ltd., Coventry, England; C. T. Brady, Jr., Buenos Ayres, Argentine; E. H. Freeman, professor of Electrical Engineering, Armour Institute of Technology; E. B. Wilson, professor of Mathematics, Massachusetts Institute of Technology; and from my students: Fred Coffman, U. B. Gilroy, R. C. Ingebritson, and K. R. Jenkins, who in various ways have assisted in the preparation of the manuscript. Sherman Kimball, of Bradford, Kimball & Co., San Francisco, kindly supplied the specimen papers shown in Appendix A; and McGraw-Hill Book Co., Inc., and H. P. Gillette and R. T. Dana generously permitted the insertion of Table K taken from their "Cost Data for Mechanical and Electrical Engineers."
J. C. L. FISH.STANFORD UNIVERSITY, CALIFORNIA,October, 1922
PREFACE TO THE FIRST EDITION
Every engineering structure, with few exceptions, is first suggested by economic requirements; and the design of every part, excepting few, and of the whole is finally judged from the economic standpoint.
It is therefore apparent that the so-called principles of design are subordinate to the principles which underlie economic judgment.
This important fact usually escapes the student of engineering because, while he may have seen hundreds of books on the principles of design and his time is largely employed in studying these principles and their application, he has seen not one book devoted to the principles which underlie economic judgment, and his books and his instructors merely mention these in passing.
It is true that during the past dozen years, chiefly as a result of the writings of such men as H. P. Gillette and F. W. Taylor, interest in the economic side of engineering has greatly widened; so that we now see the word "economics" in titles of technical articles, chapters, and even books.
Most of these works, however, assume the reader to be familiar with fundamental economic principles.
The present work was undertaken with the belief that to the engineer a working knowledge of first principles is as essential in the economics as in the mechanics of structures; and that special study and drill in the application of principles are as advantageous in the one case as in the other.
The book is intended to meet the first needs of the student, and to render effective service in the office. It is hoped that it will facilitate the introduction of formal instruction in engineering economics in the engineering schools, and assist sound engineering practice.
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