【正文】
Section II: Benefit / Cost Analysis (BCA) – Outlines methods to analyze the economic feasibility of a project – Used by EI teams in the Cause Finding and/or Solution Finding Steps of the Six Step Problem Solving Process TIME VALUE OF MONEY Because all Benefit/Cost Analysis is based on the time value of money, this section will explain in simplified terms that concept. We must start with the following simplifying assumptions: ? What if 5% rate of interest is fixed rate of return at every financial institution ? Assume no inflation ? What if you have $100 to invest TIME VALUE OF MONEY (Cont.) At the 5% rate of interest: $100 + [Giving up use for one year] = $100 + $5 [Giving up the use for one year] = $5 Time Value of Money = $5 Stated another way, $100 today is equal to $105 one year from today at a 5% interest rate or equally the present value of $105 (which you would receive 1 year from today) is $100 assuming again the same 5% interest rate. TIME VALUE OF MONEY: PRESENT VALUE EXAMPLE YEARS 0 1 2 3 4 5 $1000 $1000 $1000 $10