ABSTRACT
The basic approach to economic comparisons is to assemble all the costs relating to one course of action and all the costs relating to the alternative course of action and to compare them. The assembling of the costs must be in such a way that the two are comparable. It is the difficulty of ensuring that the assembled ‘packages’of costs are comparable that requires the calculation of either present worth, or value, of two proposals or the equivalent annual cost of the two proposals. Of these techniques of comparison, present worth is more commonly used. Both present worth and equivalent annual costs require an interest rate which is taken to represent the value of money to the investor. That is, it represents the interest the investor could receive elsewhere.
