PAYBACK = the number of years to payback the original investment. Payback is not a good tool of investment analysis as it ignores the time value of money (interest compounding)

. 1) Calculate the simple Payback for an investment costing $100,000.00 , and providing savings per year of $10,000.00, and having a useful life of 20 years. Ignore end -of-life salvage scrap value. Capital Investment Tool #2: PRESENT VALUE ANALYSIS considers the time value of money (i.e., interest compounding), thus it is a good tool of investment analysis.

2) Calculate the present value of the stream of savings for the following investment opportunity: Initial investment opportunity at start of Year 1: $13,000.00 Anticipated savings end of Year 1: $1000.00

Anticipated savings end of Year 2: $5000.00

Anticipated savings end of Year 3: $9000.00

For Present Value calculation, use a discount rate(aka Present Value Rate) = 8%