Introduction

Overview

In this second lesson, we will enhance our knowledge of calculating present, annual, and future values, and then the rate of return analysis and break-even method will be explored. The calculation of present, annual, and future values is essential to project evaluation. And the rate of return and break-even methods are a critical framework to make investment decisions.Proper application of these different approaches to analyzing the relative economic merit of alternative projects depends on the type of projects being analyzed. As noted in Lesson 1, two basic classifications of investments are:

1. revenue-producing investment alternatives
2. service-producing investment alternatives

The application of these methods differs for revenue and service-producing projects. This lesson concentrates on the application of present worth, annual worth, future worth, and rate of return techniques and their examples. These methods are illustrated here on a before-tax analysis basis.

Learning Objectives

At the successful completion of this lesson, students should be able to:

• enhance their understanding of present, annual, and future values;
• understand the framework of break-even and rate of return analysis;
• use present, annual, and future values to make investment decisions; and
• use break-even and rate of return analysis to make investment decisions.

What is due for Lesson 2?

This lesson will take us one week to complete. Please refer to the Course Syllabus for specific timeframes and due dates. Specific directions for the assignment below can be found within this lesson.

Questions?

If you have any questions, please post them to the discussion forum, located under the Modules tab in Canvas. I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.