ABSTRACT
This chapter explores possible conflicts among individuals as to valuation over time, and how the resolution of these conflicts may be systematically displayed and projects ranked. Choice of trade-offs between size and time of receipt of cash depends on one's values and opportunities. To understand time preference better, consider the concept of present value obtained by discounting the future backward to the present. Under certain circumstances, differences between individual's marginal rate of time preference may not matter and decisions would be made only by references to the cost of capital. The income generated by a project has two components--the actual flow of receipts directly from the project and the results of reinvestment of those receipts. In the terminal value method the necessary transformations for projects of different maturities are made explicit by whatever rule the political authority wishes rather than being incorporated implicitly in an investment criteria such as net present value or internal rate of return.
