ABSTRACT
This chapter introduces the concept of time value of money and explains the responsibility of engineers for incorporating the time value of money into the economic analysis of alternatives they perform for clients. This chapter also provides definitions for different types of interest including simple, compound, nominal, effective, and continuously compounded and for engineering economic terms such as present worth, future worth, annuities, salvage value, and sunk costs. Cash flow diagrams are introduced and the procedures for drawing them are discussed along with an explanation on how they are integrated into engineering economic analysis.
