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In this lesson, we have learned the payback period analysis and after-tax investment decision methods and their applications including sell versus keep, general replacement, comparing the economics of lease versus purchasing, operating and capital leases. Also, we have introduced the difference between opportunity cost and sunk cost.
It is very important to explicitly understand the assumptions related to all economic analysis calculations to properly interpret and apply the results for investment decision making. Break-even calculations are no exception. Several key assumptions may have a significant effect on proper economics analysis, such as related to before-tax or after-tax, the cash flows are in escalated or constant dollars, with or without risk adjustment, and on a cash investment or leveraged basis. There is no substitute for understanding the calculation mechanics and the meaning of relevant discounted cash flow analysis assumptions in order to be able to apply evaluation results properly for economic decision-making.
Reminder - Complete all of the Lesson 9 tasks!
You have reached the end of Lesson 9! Double-check the to-do list on the Lesson 9 Overview page to make sure you have completed all of the activities listed there before you begin Lesson 10.