ABSTRACT
The value of a sum of money will change over time. Its value will increase because of interest earned if invested or deposited in a bank, while its value will decrease because of interest that must be paid to a lending institution, such as a bank, for borrowing the money. The time value of money must be considered in order to make the best decisions. Contractors continually analyze their equipment fleets to ensure that none of their equipment is losing money for them. A contractor is considering the purchase of a new pump that will be used to remove storm runoff from open excavations. Contractors usually are interested in earning more from their equipment investment than simply the cost of money. Contractors often want to estimate the prospective rate of return on an investment or compare anticipated rates of return for several alternative investments. Rate of return analysis involves setting receipts equal to expenditures and solving for the interest rate.
