1. Review New Words Capital Stock Bond Interest Dividend Rate of Return
Real ROR
Nominal ROR

2. Basic Concept
Investing in a project means not having the money available for immediate gratification. People want extra money in the future for delaying their gratification.
We call the extra money we must pay investors a “cost of capital”
That “cost of capital” is measured as a Rate of Return

3. Basic Pattern All engineering econ problems are done the same way
List all the money in and out of your pocket by time when the money moves (cash flow)
Multiply each dollar amount by a magic number that moves the money to an equivalent value at some other time.
Add up all the dollars at a common point in time and decide whether it was worth it by the size of the pile