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<br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br /> <br />- 42 - <br /> <br />Step 13 - Select Time Horizon <br /> <br />The time horizon is the number of years over which the <br /> <br />project is to be viewed. The selection of time horizon should <br /> <br />be based upon one factor: the physical life of the improve- <br /> <br />ments which will prevent or control flooding. If the improve- <br /> <br />ments have a useful life which is less than the frequency at <br /> <br />which project design floods occur and the analyst wishes to <br /> <br />extend the cost-benefit examination to that point, it is necess- <br /> <br />ary to show the replacement of the facilities as a project cost. <br /> <br />For this example a 50-year project life was chosen. <br /> <br />Step 14 - Select an Appropriate Discount Rate <br /> <br />Selection of an appropriate discount rate is most import- <br /> <br />ant. An improper discount rate will bias the analysis and may <br /> <br />change the recommended alternative. Selection should be based <br /> <br />on the information collected in Step 6 and reflect the cost of <br /> <br />borrowed capital for the amount which is expected to be financed. <br /> <br />Five percent per year was used in this example. <br /> <br />Step 15 - Convert all Benefits and Costs to a Common Time Frame <br /> <br />Comparison of benefits and costs must be made for the <br /> <br />same time frame. Benefits stemming from reduced flood damages <br /> <br />occurring annually over the life of the project cannot be <br /> <br />compared directly, for example, with construction costs which <br /> <br />occur over a short period of time at the beginning of the <br /> <br />project. All benefits and costs must be converted to either <br /> <br />~ Leonard Rice Consulting Water Engineers, Inc. <br />