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<br />OOJ31;3 <br /> <br />33 <br /> <br />than establish a fixed rate of 7 percent as suggested, for reasons <br />of political realities, I would rather see a range of interest rates <br />recommended, with a lower rate at 7 percent and the upper rate <br />at 10 or 12 percent. This would allow for some flexibility in <br />analyzing vastly different projects which all have varying degrees <br />of risk and uncertainty associated with them. <br /> <br />"I am afraid that if one particular interest rate is estab- <br />lished, then the analysis will be built toward forcing benefits and <br />costs to conform with this criteria as a fixed parameter. II <br /> <br />***** <br /> <br />"In line with the analysis concerning the discount rate, the <br />discussion about risk and uncertainty is appropriate. It seems <br />even more important to establish a range of discount rates to <br />allow for varying degrees of risk and/or uncertainty, depending <br />upon individual situations. <br /> <br />"In addition, it would be difficult to conduct, for instance, <br />sensitivity analysis with fixed discount rates. One of the more <br />revealing aspects of sensitivity analysis is to vary the discount <br />rate, to account for risk or uncertainty, in order to observe the <br />effect on the analysis. II <br /> <br />Mr. J. W. Hersey, Chairman of the Board, American <br />Commercial Lines <br /> <br />"I appear here today to register my strong disagreement <br />with the 'opportunity cost' theory. . . <br /> <br />liThe rationale underlying the application of so-called <br />'opportunity costs' in discounting these benefits rests upon the <br />assumption that such a national investment requires an increment <br />of taxation which in turn deprives the citizens of funds which <br />otherwise would be available. It presupposes that such a public <br />investment requires citizens to forego an opportunity acting as <br />private investors to commit in the aggregate an amount of such <br />public investment at a return equal to the 'opportunity' rate of <br />return. <br /> <br />"This argument is fallacious for a number of reasons. <br />First, it assumes correctly that whenever Congress appropriates <br />a sum of money for a specific purpose it increases taxes. <br />