Return on Software: Maximizing the Return on Your Software Investment

Equivalence Under Different Interest Rates

The previous section showed how to translate a cash-flow stream under a single interest rate. Usually this will be enough. Although we can be sure that the interest rate will change over time, most business decision analyses just use a single representative “nominal,” or average interest rate over the whole study period. On occasion, however, you may need to deal with more than one interest rate over the life of a proposal. This section shows how to handle different interest rates within a time frame.

Simply put, as the cash-flow instances are being translated, you need to remember to use the appropriate interest rate in the computations. Follow the same process as above within each constant interest ...