Contribution 38

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Time Is Money
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== Time Is Money ==
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I think that ''when'' I make design choices is as important as ''what'' design choices I make. There is a psychological component to timing, such as the need to see immediate progress or the need to feel safe for the future. However, the biggest motivation for paying attention to timing is economic.
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The fundamental law of money is that a dollar today is greater than a dollar tomorrow. I can invest the dollar I hold today, giving me a fraction more than a dollar tomorrow. In evaluating two revenue streams, timing is as important as magnitude. If you tell me, "In scenario A you spend $10 to make $50, in scenario B you spend $20 to make $40," I don't know which is the better deal until you tell me ''when'' I spend and make the money.
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To evaluate a single cash flow, take the amount at a given time and ''discount'' it back to today. Thus, $10 in one year at an interest rate of %5 is the same as $9.52 today. To evaluate a compound cash flow (a series of payments in and out), discount them all and sum the result. This calculation is ''net present value''.
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If the interest rate is really 5%,
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== not done yet ==

Revision as of 17:44, 6 June 2008

Time Is Money

I think that when I make design choices is as important as what design choices I make. There is a psychological component to timing, such as the need to see immediate progress or the need to feel safe for the future. However, the biggest motivation for paying attention to timing is economic.

The fundamental law of money is that a dollar today is greater than a dollar tomorrow. I can invest the dollar I hold today, giving me a fraction more than a dollar tomorrow. In evaluating two revenue streams, timing is as important as magnitude. If you tell me, "In scenario A you spend $10 to make $50, in scenario B you spend $20 to make $40," I don't know which is the better deal until you tell me when I spend and make the money.

To evaluate a single cash flow, take the amount at a given time and discount it back to today. Thus, $10 in one year at an interest rate of %5 is the same as $9.52 today. To evaluate a compound cash flow (a series of payments in and out), discount them all and sum the result. This calculation is net present value.

If the interest rate is really 5%,

not done yet

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