Developing the cash flow for each alternative in a study is a pivotal, and usually the most difficult, step in the engineering economic analysis procedure. An integrated approach for developing cash flows includes three major components:

• A work breakdown structure (WBS) definition of the project,
• A cost and revenue structure that identifies all the cost and revenue elements involved in the study, and
• Estimating techniques (models).

Chapter 2 presented the fundamental time value of money relationships. Discuss the concept of equivalence - if two cash flows (or a series of cash flows) are equivalent for a stated interest rate, and under what circumstances you would be willing to trade one for the other.