Let's look at each of these decision techniques. And identify the calculation and decision that goes along with the calculation. Here we have our NPV or Net Present Value. We've already done several examples but let me show you one more here. We used the cost of capital as our interest rate. Assumes that cash flows C can increase or decrease over time and we have an initial capital outlay or initial cost outlay. It's negative C sub-zero. And so we do as we say given our initial cost -C, we've got cashflows, C1, C2, C3 etc, going forward. So we can calculate the present value of our income streams net of our initial costs. Then the decision rule is, choose the project if its net present value was positive or if you have more than one projects, choose the project with the highest NPV. The advantages and disadvantages of Net Present Value are that it does consider the time value of money and this is an advantage. And it also considers the cost of capital, that is you can manipulate the discount rate. Its disadvantages are that your NPV is going to be very subjective relative to your forecast of what your cash flow is. Unlike wining the lottery where you know where your cash flow is, most investment you have to make a guess, you have to make some assumptions about what your future cash flows are. And your investment is going to be very, very susceptible to change in those future cash flow assumptions. So if you make one set of assumptions, the investment may look very good. And if you make a second set of assumptions the investment may look very poor. Your assumptions matter. The technique is very solid but it is very, very sensitive to the decisions and the assumptions that you make about what the future cash flows are. One of the additional advantages of my Net Present Value calculation is you can look at two different investments and their income streams, their future cash flows can be uneven and you can still compare them. So let's suppose that you have an investment that you know has a useful life of five years. You can take the discounted cash flow of that and compare it to an investment that has a cash flow of lets say 7 or 8 or 10 years. And depending on the present value of those cash flows, you can determine which of the investments may be better.