CS-1 — Engineering Economics
Engineering Economics refers to the application of economic principles in the analysis of alternatives in engineering practice. Topics include theoretical and conceptual financial project analysis; types and applications of engineering economic decisions; capital, cash flow, and the time value of money concepts; nominal and effective interest rates when considering loans, mortgages, and bonds; the application of present worth analysis, annual equivalent analysis and rate of return analysis in evaluating independent projects; analyzing lease vs. buy alternatives and making decisions; after-tax financial analysis requires understanding of capital cost allowance (depreciation) and corporate income tax; understanding methods of financing and capital budgeting; break-even, sensitivity and risk analyses.
Subject outline
CS-1 Engineering Economics is a Complementary Studies technical exam (PEO National Examination 11-CS-1; Engineers Canada's current syllabus lists the subject as 23-CS-1) on the money arithmetic behind engineering decisions: cash flow diagrams and the time value of money; simple, compound and continuous interest, and nominal against effective rates; the interest factors for single payments, uniform series and arithmetic and geometric gradients; the present, future and annual worth of a project; comparing mutually exclusive alternatives, including unequal lives; rate of return and incremental analysis; replacement and economic life; and depreciation and the total cost of ownership. The notes close with after-tax analysis under capital cost allowance, inflation, payback, break-even, sensitivity and risk; of these, only break-even appears in the two papers.
Both papers are 3 hours and open book — any non-communicating calculator is permitted. Each has five questions: any four constitute a complete exam paper, only the first four as they appear in the answer book are marked, and each question is of equal value, 25 marks with the part marks printed on the paper. Candidates are urged to draw cash flow diagrams whenever applicable, and any assumption about a question that is not clear should be stated clearly.
What this course gives you
Worked solutions — all ten questions from December 2018 and December 2019 (nine distinct: December 2018 Q4 is set again as December 2019 Q3), every lettered part, fully retypeset as live text and maths: the hand-written December 2018 working and the typed December 2019 working are both converted in full, the final answers are pulled out ahead of the working, every hand-drawn cash flow diagram is redrawn, the interest-table snapshots are replaced by factor tables computed for this course, and 29 authored figures and 16 tables sit beside the steps they explain. Every published step was checked, and twelve that do not survive checking are flagged at the step that goes wrong, each explained at that point with the corrected value or reasoning beside it; eight published final answers change as a result. The largest: December 2019 Q4(c) answers "5 to 6 years", reasoning from a 2% price escalation the question never states and contradicted by its own six-year check, when the question's own data give a break-even of 10.37 years; the December 2019 stadium's future worth is compounded over 52 years instead of 53 (1,043.99 million published, 1,105.70 million corrected); December 2019 Q5 carries a wrong first-year O&M cost and a 0.5% discount factor into its two shortest equivalent annual costs (39,900 and 38,667.92 published, 39,400 and 37,826.19 corrected); the December 2018 bridge's future worth loses its minus sign, turning a net cost into a gain; and both papers set the same rate-of-return question, which neither published solution answers with a rate of return. The IRR and incremental analysis the marks are for is written for this course and worked in full in each: the three investments earn 9.01%, 9.90% and 7.17%, and the extra money in Investment 2 over Investment 1 earns 10.36% against the 8% MARR. Smaller ones — a deposit credited with 12 months of interest instead of 11, a future worth that does not follow from its own factors, a salvage discounted over 52 years, the right "no" given for the wrong reason, and today's market value called a sunk cost — are flagged the same way. Nothing is silently overwritten: where the published solution gives a figure, it is kept beside the correction. Study notes — ten condensed topics: cash flow diagrams, timing and the time value of money; simple, compound and continuous interest with nominal and effective rates; the interest factors for series, gradients and perpetuities; payment periods that differ from compounding periods; present, future and annual worth of a multi-phase project; comparing mutually exclusive alternatives; rate of return and incremental analysis; replacement analysis and economic life; depreciation and the cost of ownership; and after-tax analysis, inflation, payback and risk — with 32 figures and 4 comparison tables between them, each topic pointing back at the exam questions it answers. Practice & case studies — ten multiple-choice questions and five longer problems — two of them case studies — with worked answers for every one. All fifteen are written for this course; none is taken from the two papers. Formula sheet — two pages, 31 relations in 8 groups. The exam is open book, so this is a sheet to print and take in with the interest-factor tables. Printable resources — ten reference sheets — interest-factor tables at i = 1%, 6%, 7%, 8% and 10% and a table of effective rates by compounding frequency, every value computed for this course rather than copied from a textbook appendix, then a which-factor decision map, a comparing-alternatives checklist, a replacement, tax and inflation card and an exam-day checklist — plus four blank exam stationery templates. Reference links — nine selected reference websites, among them the PEO technical exam page, the Engineers Canada complementary-studies syllabus, an open Canadian engineering-economics textbook and the CRA capital cost allowance classes, and nine YouTube searches, one per topic, each with a note on what it covers. Practice papers — the two question papers on their own, unmarked, for a timed three-hour run.