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<br />GDJ03/. <br /> <br />Capital costs will be annualized at interest rates of 5, 7 1/2, <br />a~d 10 percent consistent with the discount rates ~sed for the <br />primary information displays and the sensitivity analyses. <br /> <br />Supplemental Irrigation Benefits. The benefits of <br />supolemental irrigation shall be estimated in the same way as was <br />done for the Interim Repor~. An estimated unit value of $30 per <br />acre-feet of water developed will be used for the Phase II <br />analyses. <br /> <br />Improved Management Benefits. The benefits of improved <br />management for 50,000 acre-feet of irrigation water shall be <br />esti~ated in the same manner as was done for the Interim Report. <br />An assumed unit value of $5 per acre-foot will be used for the <br />benefit-cost analyses. In addition, the final report will <br />include a discussion of the possible range of values for the <br />i~proved management benefits. <br /> <br />Period of Analvsis <br />~ <br /> <br />The ?eriod of analysis will consist of the estimated project <br />life (up ~o 100 years) and a preceeding authorization and <br />construction period. Benefits and cos~s occurrinq throughout the <br />period of analysis will be brought to the present (1982) for <br />comoarison and aggregation using conventional discounting <br />procedures. <br /> <br />Discount Rates <br /> <br />The economic evaluations will be prepared using each of <br />three discount rates. All of these rates will be net of <br />inflationary considerations. The low rate will be 5%, which is <br />taken to reflect the cost of borrowina to the State and other <br />public entities. This rate is aopropriate under the assumption <br />that public budgets are set without reference to the opportunity <br />costs of capital in the private sector and that such budgets are <br />fixed in total a~ount, irrespective of decisions on the <br />individual projects which must be funded from them. Under these <br />assumptions, proposed projects compe~e only with each ot~er 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 appropriate 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 to be used for the primary information <br />displays will be 7 1/2%. This rate approximates the discount <br />rate presently employed in federal water resource development <br /> <br />-5- <br />