技术经济学英文版演示文稿c2.pptxVIP

2.1 Theory of Equivalence（等值）In any decision making process, we have to account for the benefits and the costs of a project. In a typical project, the costs occur at the beginning of the project and the benefits accur over a period of time. For example, installation of a waterflood project results in benefits in terms of additional oil recovery over several future years. However, to install waterflood, we may have to incur sufficient costs at the present time. This money has to come from internal capital of a corporation or from a lending institute. Either way, by using internal capital or by borrowing money, we will either lose the opportunity to invest the money somewhere else or we will have to pay interest to the lending institution. That is, instead of investing the money in a waterflooding project, we could have earned interest from a bank by investing that money in the bank; or, if we have borrowed the money to invest in this project, we have to pay interest on the borrowed amount. This lost opportunity (opportunity cost) or the interest payment has to be accounted for in our cost benefit analysis. One way to do this is through the understanding of the time value of money. Money is a valuable commodity. People will pay you to use your money. You will have to pay someone to use their money. The cost of money is established and measured by an interest rate. Interest rate is periodically applied and added to(额外的) the amount (the principal) over a specific period of time. For example, depositing $100 in the bank for one year may generate an interest of $6 at the end of the year. That is, the bank has paid you 6% interest to use your money. In the same vane, the bank will turn around and lend that money to another individual and charge 10% interest. The borrower will have to pay back $110 at the end of one year. We can also say that, for you, $100 today is equivalent to $106 one year from now. For the bank, $100 today is equivalent to $110 one year from now. Thi