CHAPTER 8

Basic Financial Analysis of Technology

Overview

In Chapter 7, we saw how to levelize the present purchase price of a device over its useful life in order to evaluate the costs and benefits of the device on an annual basis. In this section, we take the opposite perspective, starting with a known cash flow over time and working back to its equivalent amount as a single payment in the present. When the cash flow describes the benefits and costs of using a device, the equivalent single payment in the present represents the value of the device, which is the maximum amount a person should be willing to pay for it.

The examples in this chapter are set in a personal context, where a homeowner is considering an investment in an energy-saving ...

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