FGS 3101: Introduction to Engineering

Dept of Geospatial and Space Technology,

University of Nairobi
By: Maxwell Odira – Faculty member in Civil and Construction
Engineering Dept

Course purpose
• To introduce students to the field of civil engineering as a branch of
engineering profession.
 Geospatial and Space Engineer
• Who is he and what does he do?
• Involves in solving complex problems
related to geography, location and spatial
analysis.
• Collect, analyze, and interpret geospatial
data to support decision-making in various
industries like construction, urban
planning, transportation, environmental
management, and many other engineering
applications.
 Expected learning outcomes
At the end of the course, a learner should be able to:

• Define Civil Engineering.

• Describe the history of Civil Engineering.

• Explain sub-disciplines of Civil Engineering.

• Describe an Engineer as a Professional.

• Explain Engineering Approach to Problem Solving.

• Describe Economic and Social Element in Engineering.

 Expectations from students
• Class attendance of not less than ¾
• Timely submission of assignments, reports and full participation in class
activities.
• Students are advised to put their phones in silent mode for physical classes
and to mute their microphones for virtual classes unless when asking or
responding to questions.
 Introduction to Engineering

• As a result of civilization, human race realized that it was possible to overcome

certain natural challenges and improve on the living standard.

• Some of such challenges were;

i. Bad weather which necessitated need for shelter

ii. Need to cross valleys and rivers leading to development of transport

system, bridges etc.

iii. Development of tools to make their daily work easier

iv. Need for arms to defend themselves against their enemies

How can engineering be defined?

• Engineering can be defined as a profession that combines fields of science and

maths to solve real world problems that improve the world around us.
 Introduction to Engineering…….

It is one of four cluster subjects referred to as STEM: -

i. Science is the motherboard on which all knowledge is based.

ii. Technology is the collection of techniques used to solve day-to-day problems.

iii. Engineering is the highest level of technology used to solve major challenges.

iv. Mathematics is the common tool necessary for all the other subjects.

Over the centuries, engineering has consistently advanced to a level where: -

• Every single development is attributed to engineering.

• Every tool we use is a product of engineering.

• Every aspect of life is made better by engineering.

• Meaning that life would be difficult without engineering? .

 Branches of Engineering

• Due to many challenges facing the human race, and because of advances in
science and technology, engineering has evolved into many inter-related
disciplines referred to as branches of engineering

• There are many branches of engineering each dealing with a particular set of
engineering aspects, but the branches are closely inter-related.

• The classical branches of engineering are: -

i. Civil Engineering: deals with buildings and structures, roads, highways and
railways, airports and seaports, water supply systems, waste water treatment,
flood mitigation and control, irrigation and canals, tunneling and underground
works.

ii. Mechanical Engineering: deals with tools, equipment, machines, plant,

industry, manufacturing and processing.
 Branches of Engineering…….

iii. Electrical Engineering: deals with electric power generation, power supply and
distribution, electronic equipment, electronic machines, telecommunications and
information systems.

iv. Agricultural Engineering: also known as Agricultural and Biosystems

Engineering is concerned with the design, construction and improvement of
farming equipment and machinery, location of farm structures, farm drainage,
soil management and erosion control, water supply and irrigation, rural
electrification and processing of farm products.

There are also other emerging branches of engineering due to ever increasing need
for more specialization from different fields.
 Other Emerging branches of engineering

• Mechatronic Engineering: is an interdisciplinary branch of engineering which

integrates mechanical engineering, electronics engineering and computer
science to design robotic and other equipment and machines which use artificial
intelligence to operate themselves.

• Biomedical Engineering: is a branch of engineering which applies engineering

principle to design and operate biomedical equipment necessary for specialized
healthcare.

• Chemical Engineering: deals with the design and operation of chemical

processing plants which are used to convert raw materials into semi-finished
products or finished products.

• And others
 Introduction to Civil engineering

• Civil Engineering: is considered to be the oldest engineering discipline. The

term Civil Engineering was coined sometimes in the 18th century (1700 – 1799)
so as to distinguish “civilian” engineering from “military” engineering.

• It is a professional discipline that deals with the design, construction and

maintenance of infrastructural facilities such as: -

i. Buildings: Domestic houses, commercial buildings, industrial sheds,

institutional buildings, sports stadia and gymnasia, bunkers and silos.

ii. Transport: Roads, highways, railways, seaports and airports.

iii. Bridges: Foot bridges, highway bridges, interchanges, overpasses and

underpasses.
 Introduction to Civil engineering…….

iv. Geotechnical: Tunnels, dams, hydroelectric power stations and underground

works.

v. Water Resources: Water intake, treatment, storage, supply and distribution

systems.

vi. Public Health: Waste water and solid waste collection, treatment and recycling

vii. Public works: Flood mitigation and control, storm drainage and irrigation
canals.

• Civil Engineering is based on the application of scientific principles and

mathematical tools to analyze, design and construct the desired facility.

• Civil Engineering is therefore defined as the “art and science of harnessing

natural resources for the use, comfort and convenience of mankind”.
 History of Civil engineering

• Civil Engineering has been an aspect of life since the beginning of human
existence.

• The earliest practices of Civil engineering may have commenced between 4000
and 2000 BC in Ancient Egypt and Mesopotamia (Ancient Iraq) when humans
started to abandon a nomadic existence, thus causing a need for the
construction of shelter.

• During this time, transportation became increasingly important leading to the

development of the wheel and sailing.

• The construction of pyramids in Egypt (2700-2500 BC) might be considered the

first instances of large structure constructions.
 History of Civil engineering

• Some of the early civil engineering structures .

Fig1:Pyramids of Egypt
Fig2: Cable Stayed Bridge

Fig3:Roman Aqueducts Fig4: The Wheel

 History of Civil engineering…….

Before 1750, construction was done by artisans (masons and carpenters) who
would become “master builders” or “architect-engineers”.

Civil engineering separated from architecture and became a distinct profession in

1750.

Before 1750, knowledge and skills were acquired through experience and
apprenticeship, but there was limited scientific input or artistic creativity. Building
designs were repetitive, based on what was known to work and with limited increase
in scale.

Since 1750, architects deal with the artistic aspects, while civil engineers deal with
the technical aspects of buildings. Civil engineers apply scientific principles and
use mathematics to analyse and design structures. This has resulted in safer and
bigger designs.
 Sub-Disciplines in Civil Engineering

• Civil engineering profession is so broad and is therefore sub-divided into several

sub-disciplines also known as specialties which are closely interrelated. Each
sub-discipline deals with the design, construction and maintenance of a
particular set of infrastructural facilities.

• The major sub-disciplines or areas of specialization in civil engineering are;

i. Geotechnical engineering

ii. Structural engineering

iii. Transport engineering

iv. Water resources engineering

v. Environmental Health engineering

vi. Materials engineering

vii. Construction engineering

 Geotechnical Engineering

• Geotechnical engineering is an area of civil engineering concerned with the rock

and soil that civil engineering systems are supported by.

• Geotechnical Engineers analyze the subterranean rock and soil to determine its
suitability to support extreme loads.

• Proper geotechnical engineering is essential for a safe and secure

structure.

• Geotechnical Engineering specializes in the design, construction and

maintenance of: -

i. Foundations to all structural engineering works

ii. Pavements, earthen dams, canals and earth retaining structures

iii. Tunnels, underpasses, subways and underground works

 Geotechnical Engineering……..

• Assessment of soil bearing capacity to safely support structural loads.

• It also involves ground improvement techniques.

• Underground engineering tasks rely so much precise location positioning, a

service offered by geospatial and space engineers.

Site investigation Tunnel excavation

 Structural Engineering

• Load acting on a structure is ultimately transferred to the ground. In a building

load acting on a slab is transferred by slab to the ground through beams,
columns and footings. A structural engineer has to identify the loads which act
upon a structure and the forces and stresses which arise within that structure
due to those loads, and then designing the structure to successfully support and
resist those loads.

• The loads can be self weight of the structures, other dead load, live loads,
moving (wheel) load, wind load, earthquake load, load from temperature change
etc.

• Structural engineers design steel, concrete, or timber framed structures such as:

Tall buildings & towers, Bridges, Dams, Retaining walls, foundations, & Stadiums.

• There are computer packages used by engineers for design and analysis of
structures.
 Structural Engineering……..

• Some structural engineering structures

Road overpass

University of Nairobi Tower

 Transportation Engineering
• Transportation engineering is concerned with moving people and goods
efficiently, safely, and in a manner conducive to a vibrant community.
Transportation Engineers are involved in specifying, designing, constructing, and
maintaining transportation infrastructure which includes;

i. Highways,

ii. Streets,

iii. Canals,

iv. Railways,

v. Ports

vi. Airports,

vii. Parking Lots, and

viii. Traffic Control Signal Systems.

 Transportation Engineering…….
• Transportation engineering facilities

Road network

A bridge across the sea

Standard gauge railway

Airport runway
 Water Resources Engineering

• Water resources engineering is concerned with the collection and management

of water (as a natural resource).It relates to the prediction and management of
both the quality and the quantity of water in both underground (aquifers) and
above ground (lakes, rivers, and streams) resources.

• Water Resources Engineer specializes in the design, construction and

maintenance of:

i. Water supply systems

ii. Hydroelectric power stations

iii. Groundwater and Rainwater harvesting systems

iv. Irrigation systems

v. Storm drainage, flood mitigation and control systems.

vi. Drainage systems and

vii. Navigational waterways

 Water Resources Engineering……..
• Water resources engineering infrastructure

Water distribution system

Dam for water collection

Hydro electric power generation

 Environmental Health Engineering

• Environmental health engineering deals with the treatment of chemical,

biological, and/or thermal waste, the purification of water and air, and the
remediation of contaminated sites, due to prior waste disposal or accidental
contamination. Environmental health engineers are trained to design or analyze
projects and facilities aimed at providing healthy environment to the public.

• Some facilities under this domain are;

i. Waste water collection, treatment, recycling and safe disposal systems,

ii. Solid waste collection, treatment, recycling and safe disposal systems,

iii. Industrial waste water treatment and disposal systems

 Environmental Health Engineering…….

• Environmental health engineering facilities;

Solid waste treatment plant

Effluent treatment plant
 Materials Engineering
• Material engineering deals with materials such as concrete, asphalt concrete,
metals such as aluminum and steel, etc.

• Some of the tasks for materials engineer involves;

i. developing, modifying, testing and evaluating materials.

ii. providing technical advice about the suitability of materials.

iii. diagnosing faults.

iv. advising on, planning and organizing inspections, maintenance and repairs.

v. overseeing operational quality control processes.

vi. undertaking relevant research

 Materials Engineering…….
• Civil engineering materials.
 Construction Engineering

• Construction engineering involves planning and execution of the designs from

transportation, site development, hydraulic, environmental, structural and
geotechnical engineers. Other roles include;

i. Construction managers:

ii. Review contracts,

iii. Order materials,

iv. Hire and schedule sub-contractors.

v. The job of a construction manager is to:

vi. Provide quality control and ensure project is completed on time and.

vii. Within budget.

 Construction Engineering…..

• Construction engineer involves in execution of the designed structure.

 Engineer as a Professional

• The engineering profession is structured into four levels according to levels of

certification as : -

1. Artisans: Masons, carpenters, welders, plumbers and electricians who hold

government Trade Test Certificates from TVET colleges.

2. Technicians: Holders of Ordinary National Diploma in an area of specialization

within the engineering profession.

3. Technologists: Holders of Higher National Diploma in an area of specialization

within the engineering profession.

4. Engineers: Holders (or prospective holders) of BSc degree in any of the

engineering disciplines from a recognized university.
 Classification of Engineers

• In Kenya, engineers are further classified into four categories as: -

1. Student engineers: Persons pursuing a BSc degree in engineering.

2. Graduate engineers: Persons who have recently graduated with a BSc degree
from a recognized university and are registered as such by Engineers Board of
Kenya (EBK). They transition to professional engineers upon working under
supervision of a professional engineer for a minimum of 3 years and being
subjected to assessment by relevant panels of the board.

3. Professional engineers: are competent by virtue of their fundamental education

and training to apply the scientific method and outlook to the analysis and solution of
engineering problems. They are registered and licensed to work and earn a living as
a practicing engineers by EBK.

4. Consultant engineers: Persons who are licensed to work as consultant

engineers.
 Engineering Regulatory Bodies

• The engineering profession is regulated by various bodies: -

1. ESA (and ACES): These are engineering student’s associations at the University
of Nairobi.

2. Engineers Board of Kenya (EBK) is a statutory body which registers engineers.

3. Institution of Engineers of Kenya (IEK) is members club for engineers.

4. Association of Consultant Engineers (ACE) is members club for consultant

engineers
 ENGINEERING ACHIEVEMENTS OF THE 20TH CENTURY
• In the 20th century, great achievement in engineering profession were
witnessed which changed the world. The achievements have been advanced in
the 21st century. Some of the greatest achievements in the century were;

1. Electrification 11. Automobile

2. Airplane 12. Water Supply and Distribution
3. Electronics 13. Radio and Television
4. Agricultural Mechanization 14. Computers
5. Telephone 15. Air Conditioning and
Refrigeration
6. Highways 16. Spacecraft
7. Internet 17. Imaging
8. Household Appliances 18. Health Technologies
9. Petroleum and Petrochemical 19. Laser and Fiber Optics
Technologies
10. Nuclear Technologies 20. High-performance Materials
 ENGINEERING ACHIEVEMENTS OF THE 20TH
CENTURY……
Health technologies

• Medical professionals have an arsenal of diagnostic and treatment equipment at

their disposal. Artificial organs, replacement joints, imaging technologies, and bio-
materials are but a few of the engineered products that improve the quality of life
for millions.

Imaging technologies

• Imaging technologies have expanded the reach of our vision. Probing the human
body, mapping ocean floors, tracking weather patterns are all the result of
engineering advances in imaging technologies.

Space explorations

• The development of spacecraft has expanded our knowledge base, and improved
our capabilities. Thousands of useful products and services have resulted from
the space program, including medical devices, wireless communications, etc.
 ENGINEERING ACHIEVEMENTS OF THE 20TH
CENTURY……
Agricultural mechanization

• The machinery of farms; tractors, cultivators, combines, and hundreds of others;

dramatically increased farm efficiency and productivity.

Electronics

• Electronics provide the basis for countless innovations; CD players, TVs, and
computers. From vacuum diode to the rise of bioinformatics and quantum
communication.
 ENGINEERING ETHICS

• Engineering Ethics is the field of applied moral principles which examines and
sets standards for engineers' obligations to the public, their clients, employers
and the profession.

Codes of Ethics

• Many engineering professional societies have prepared codes of ethics. Some

go back to the early decades of the twentieth century.

Fundamental Principles

• Engineers uphold and advance the integrity, honor and dignity of the engineering
profession by:

1.using their knowledge and skill for the enhancement of human welfare and the
environment;

2.being honest and impartial and serving with fidelity the public, their employers and
clients.
 ENGINEERING ETHICS….
3. striving to increase the competence and prestige of the engineering profession;
and

4. supporting the professional and technical societies of their disciplines.

FUNDAMENTAL CANONS

Fundamental canons of ethics means prescribed Standards of ethical conduct or

Code of Professional Responsibility which sets forth the standards of conduct
prescribed for engineers in their professional dealings.

1. Engineers shall hold paramount the safety, health and welfare of the public and
shall strive to comply with the principles of sustainable development in the
performance of their professional duties.

2. Engineers shall perform services only in areas of their competence.

3. Engineers shall issue public statements only in an objective and truthful manner.

4. Engineers shall act in professional matters for each employer or client as faithful
agents or trustees, and shall avoid conflicts of interest.
 FUNDAMENTAL CANONS….

5. Engineers shall build their professional reputation on the merit of their services
and shall not compete unfairly with others.

6. Engineers shall act in such a manner as to uphold and enhance the honor,
integrity, and dignity of the engineering profession.

7. Engineers shall continue their professional development throughout their careers,

and shall provide opportunities for the professional development of those engineers
under their supervision.

WHISTLEBLOWING

Defined as the disclosure by a person, usually an employee in a government

agency or private enterprise, to the public or to those in authority, of
mismanagement, corruption, illegality, or some other wrongdoing.
Examples of problems that might warrant whistle-blowing
• Incompetence

• Criminal Behavior

• Unethical Policies

• Threat to Public Safety

• Injustices to Workers

Moral Guidelines to Whistle-Blowing

It is morally permissible for engineers to engage in external whistle-blowing

concerning safety:

1. If the harm that will be done by the product to the public is serious and
considerable

2. If they make their concerns known to their superiors

3. If getting no satisfaction from their immediate superiors, they exhaust the

channels available within the corporation, including going to the board of directors.
 Moral Guidelines to Whistle-Blowing……..
4. He [or she] must have documented evidence that would convince a reasonable,
impartial observer that his [or her] view of the situation is correct and the company
policy wrong.

5. There must be strong evidence that making the information public will in fact
prevent the threatened serious harm.

Other Ethical Issues

Other non technical ethical issues that engineers may face include:

• Relationships with clients, consultants, competitors, and contractors

• Ensuring legal compliance by clients, client's contractors, and others

• Conflict of interest

• Bribery and kickbacks, which also may include: Gifts, meals, services, and
entertainment

• Consideration of the employer’s assets

 ENGINEERING APPROACH TO PROBLEMS-SOLVING
STEPS IN PROBLEM SOLVING

Engineers must analyze and solve a wide range of technical problems. Some will
be reasonably simple single-solution problems. Others will be open-ended and will
likely require a team of engineers from several disciplines. Some problems may
have no clear solution.

• Identify, recognize and understand the problem

• Gather data (and verify its accuracy)

• Select guiding theories and principles

• Make assumptions when necessary; identify Constraints and Set General

Specifications: refine and add specifications

• Solve the problem

• Verify the results

• Present the solution

 PROBLEMS-SOLVING TOOLS
The problem solving tools include three unique categories: problem solving
diagrams, problem solving mind maps, and problem solving software solutions.
They include:

• Fishbone diagrams- Is a visual way to look at cause and effect of a problem.

• Flowcharts – step by step approach of solving a task displayed inform of a chart.

• Strategy maps

• Mental maps

• Idea maps

• Concept maps

• Layered process audit software

• Charting software

• MindManager
 Methodology
Engineers apply the sciences of physics and mathematics to find suitable solutions
to problems or to make improvements to the status quo. More than ever, engineers
are now required to have knowledge of relevant sciences for their design projects,
as a result, they keep on learning new material throughout their career.

If multiple options exist, engineers weigh different design choices on their merits and
choose the solution that best matches the requirements. The crucial and unique
task of the engineer is to identify, understand, and interpret the constraints on a
design in order to produce a successful result. It is usually not enough to build a
technically successful product; it must also meet further requirements.

Constraints may include available resources, physical, imaginative or technical

limitations, flexibility for future modifications and additions, and other factors, such
as requirements for cost, safety, marketability, productibility, and serviceability. By
understanding the constraints, engineers derive specifications for the limits within
which a viable object or system may be produced and operated.
 TOOLS FOR ENGINEERING PROBLEM SOLVING
Calculations and Analysis

Engineers use their knowledge of science, mathematics, logic, and appropriate

experience to find suitable solutions to a problem. Engineering is considered a
branch of applied mathematics and science. Creating an appropriate mathematical
model of a problem allows them to analyze it (sometimes definitively), and to test
potential solutions.

Usually multiple reasonable solutions exist, so engineers must evaluate the different
design choices on their merits and choose the solution that best meets their
requirements.

Engineers typically attempt to predict how well their designs will perform to their
specifications prior to full-scale production. They use, among other things:
prototypes, scale models, simulations, destructive tests, nondestructive tests, and
stress tests. Testing ensures that products will perform as expected.
 TOOLS FOR ENGINEERING PROBLEM SOLVING…
Engineers as professionals take seriously their responsibility to produce designs that
will perform as expected and will not cause unintended harm to the public at large.
Engineers typically include a factor of safety in their designs to reduce the risk of
unexpected failure. However, the greater the safety factor, the less efficient the
design may be.

Computer use

As with all modern scientific and technological endeavors, computers and software
play an increasingly important role. As well as the typical business application
software there are a number of computer aided applications (Computer-aided
technologies) specifically for engineering. Computers can be used to generate
models of fundamental physical processes, which can be solved using numerical
methods.

One of the most widely used tools in the profession is computer-aided design (CAD)
software which enables engineers to create 3D models, 2D drawings, and
schematics of their designs.
 SOCIAL ELEMENTS OF ENGINEERING
•The engineering profession has a variety of ethical responsibilities to society and
the environment. Most engineering solutions have always had a major impact on
society which in some cases have been clearly positive, such as in the case of
house appliances and water purification, improvement in transport and
communication, human health etc while in other cases the impact have been
negative, as in the case of bombs with ever-increasing destructive power,
environmental degradation and pollution, loss of jobs and even loss of lives .

Engineering solutions such as Social media and mobile devices may lead to
psychological and physical issues, such as eyestrain and difficulty focusing on
important tasks.

They may also contribute to more serious health conditions, such as depression.
The overuse of technology may have a more significant impact on developing
children and teenagers.
 SOCIAL ELEMENTS OF ENGINEERING……….
• It is therefore necessary to for engineers to understand and integrate the social
dimension into engineering interventions during planning, design and use of
engineering products

• As members of multidisciplinary teams engineers are expected to work more

closely with other professionals, users and communities and in some cases learn
from them, not only about their needs but also about the possible ways of
facilitating what they want to achieve.

• Engineers are expected to contribute to the positive social outcomes and learn to
minimize negative social outcomes of their interventions which some may come
from members of user communities and other disciplines.
 ENGINEERING ECONOMY
•Engineering economics is concerned with the systematic evaluation of the benefits
and costs of projects involving engineering design and analysis. It quantifies the
benefits and costs associated with engineering projects to determine if they save
enough money to warrant their capital investments.

It is used to answer many different questions such as;

– Which engineering projects are worthwhile?

• Has the mining or petroleum engineer shown that the mineral or oil deposits is
worth developing?

– Which engineering projects should have a higher priority?

• Has the industrial engineer shown which factory improvement projects should be
funded with the available dollars?

– How should the engineering project be designed?

• Has civil or mechanical engineer chosen the best thickness for insulation?
 ENGINEERING ECONOMY………..
Basic Concepts

• Cash flow

• Interest Rate and Time value of money

• Equivalence technique

Cash Flow

Engineering projects generally have economic consequences that occur over an

extended period of time.

– For example, if an expensive piece of machinery is installed in a plant were

bought on credit, the simple process of paying for it may take several years.

– The resulting favorable consequences may last as long as the equipment

performs its useful function.

Each project is described as cash receipts or disbursements (expenses) at different

points in time.
 ENGINEERING ECONOMY………..
Categories of Cash Flow

The expenses and receipts due to engineering projects usually fall into one of the
following categories:

– First cost: expense to build or to buy and install

– Operations and maintenance (O&M): annual expense, such as electricity, labor,

and minor repairs

– Salvage value: receipt at project termination for sale or transfer of the equipment
(can be a salvage cost)

– Revenues: annual receipts due to sale of products or services

– Overhaul: major capital expenditure that occurs during the asset’s life
 ENGINEERING ECONOMY………..

Cash Flow Diagrams

The costs and benefits of engineering projects over time are summarized on a cash
flow diagram (CFD). Specifically, CFD illustrates the size, sign, and timing of
individual cash flows, and forms the basis for engineering economic analysis.

The diagram consists of a horizontal line with markers at a series of time intervals.
At appropriate times, expenses and costs are shown.
 ENGINEERING ECONOMY………..

Time Value of Money

Money has value which changes with time.

– Money can be leased or rented

– The payment is called interest

– If you put $100 in a bank at 9% interest for one time period you will receive back
your original $100 plus $9

• Original amount to be returned = $100

• Interest to be returned = $100 x .09 = $9

 ENGINEERING ECONOMY………..

Compound Interest

Interest that is computed on the original unpaid debt and the unpaid interest

Compound interest is most commonly used in practice

Total interest earned = In = P (1+i)n - P

– Where,

• P – present sum of money

• i – interest rate

• n – number of periods (years)

I2 = $100 x (1+.09)2 - $100 = $18.81

 ENGINEERING ECONOMY………..

Present Value (PV) and Future Value (FV):

Cost and benefit are calculated in terms of today's value of investment. What future
money is worth today is called its Present Value (PV). The right to receive a
payment one year from now for KShs. 100 (the future value) might be worth to us
today KShs. 95 (its present value). It is used in capital budgeting and investment
planning to analyze the profitability of a projected investment or project.

Present value is discounted below future value.

F
PV = 1  i n
n - the time of the cash flow

i - the discount rate (the rate of return that could be earned on an investment in the
financial markets with similar risk.)

F - Net cash flow at time n

 ENGINEERING ECONOMY………..

Example 1:

Present value of $3,000 invested at 15% interest at the end of 5th year is calculated
as

P = 3,000/(1 + 0.15)5

= 1,491.53

Table below shows present value analysis for 5 years

Year Estimation Future Present Value Cumulative present

Value Value of Benefits
1 3,000 2,608.69 2,608.69
2 3,000 2,268.43 4,877.12
3 3,000 1,972.54 6,949.66
4 3,000 1,715.25 8,564.91
5 3,000 1,491.53 10,056.44
 ENGINEERING ECONOMY………..

Net Present Value (NPV)

The sum of all Present Values PVs is the net present value (NPV).

Net Present Value (NPV) = Sum of all PVs

What NPV Means

NPV is an indicator of how much value an investment or project adds to the firm.
With a particular project, if F is a positive value, the project is in the status of
discounted cash inflow in the time of t. If F is a negative value, the project is in the
status of discounted cash outflow in the time of t.

Appropriately risked projects with a positive NPV could be accepted.

 ENGINEERING ECONOMY………..

If... It means... Then...

NPV > 0 the investment would add value to the project may be accepted
the firm
NPV < 0 the investment would subtract the project should be rejected
value from the firm
NPV = 0 the investment would neither gain We should be indifferent in the
nor lose value for the firm decision whether to accept or
reject the project. This project
adds no monetary value.
Decision should be based on
other criteria, e.g. strategic
positioning or other factors not
explicitly included in the
calculation.
 ENGINEERING ECONOMY………..

Example 2: Comparing Competing Investments with NPV.

Consider two competing investments. Each calls for an initial cash outlay of KShs.
100M and each returns a total a KShs. 200M over the next 5 years making net gain
of KShs. 100M. But the timing of the returns is different, as shown in the table below
(Case A and Case B), and therefore the present value of each year’s return is
different. The sum of each investment’s present values is called the Discounted
Cash flow (DCF) or Net Present Value (NPV). Using a 10% discount rate , we find:
 ENGINEERING ECONOMY………..
CASE A CASE B
Timing Net Cash Present Net Cash Present
Flow Value Flow Value
Now – 100.00 – 100.00 – 100.00 – 100.00
Year 1 60.00 54.54 20.00 18.18
Year 2 60.00 49.59 20.00 16.52
Year 3 40.00 30.05 40.00 30.05
Year 4 20.00 13.70 60.00 41.10
Year 5 20.00 12.42 60.00 37.27
Total Net CFA NPVA = Net CFB = NPVB = 43.12
= 100.00 60.30 100.00
Comparing the two investments, the larger early returns in Case A lead to a better
net present value (NPV) than the later large returns in Case B. Note especially the
Total line for each present value column in the table. This total is the net present
value (NPV) of each "cash flow stream." When choosing alternative investments or
actions, other things being equal, the one with the higher NPV is the better
investment.
 EXERCISE

Assume that a company is considering investing in two projects namely Project X

and Project Y and wants to use the NPV to help in deciding which project to invest
in. Both project X and project Y is four-year project and net cash flows of both the
projects for four years are given below:

Year Project X net cash flows in kshs Project Y net cash flows in kshs
1 500000 100000
2 400000 300000
3 300000 400000
4 100000 675000

The firm's cost of capital is 10% for each project and the initial investment amount is
kshs10,000,000. Calculate the NPV of each project and determine in which project
the firm should invest.