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<br />. <br /> <br />. <br /> <br />!nterest Rates <br /> <br />Alternative analysis will be prepared using each of three <br />interest rates. All of these rates will be net of inflationary <br /> <br />considerations. The low rate will be 5%, which is taken to <br /> <br />reflect the cost of borrowing to the State and other public <br /> <br />enti ties. This rate is appropriate under the assumption that <br /> <br />, <br />public budgets are set without reference to the opportunity costs <br /> <br /> <br />of capital in the private sector and that such budgets are fixed <br /> <br /> <br />in total amount, irrespective of decisions on the individual <br /> <br />projects which must be funded from them, .Under these <br />assumptions, proposed projects compete only with each other for <br />available funding. <br /> <br />The high discount rate to be used is 10%, This rate <br />reflects the inflation-free opportunity cost of capital in the <br />private Sector, It is approp~iate under the assumptions that the <br />levels of public budgets are not established independently of the <br />merits of the individual projects to which they will be <br />allocated, and that such projects will therefore compete not only <br />with each other but also with private sectOr investment <br />opportunities. Both the high and low discount rates will be used <br />for purposes of sensitivity analysis. <br /> <br />The interest rate is to be used for the primary information <br /> <br />displays will be 7 1/2%, This rate approximates the discount <br />rate presently employed in federal water recource development <br />planning and, therefore, permits comparison of federal studies <br /> <br />-12- <br />