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, OD231S . CHAPTER II . BASES FOR ANALYSIS Benefit-cost analysis As a measure of the economic justification of each unit, the ratio of the unit's benefits to costs vas determined. The ratio vas determined by comparing both benefits and costs as average annual equivalent values over a lOO-year common-time period at 2.5-percent interest compounded annually. A lOO-year period vss chosen for the analyses as this period is estimated as the minimum useful life for the works of each unit in viev of the allo-wances made for replacements. Benefi ts Irrigation benefits were evaluated on the basis of a long-term pro- jected price level of 215(1910-14=100). Estimates were made of direct, indirect, and public benefits. Direct benefits represent the increase in farm income resulting from the project in excess of farm production costs end the value of alternative employment opportunities, Indirect benefits include the increased profits to the nonfarm enterprises' result- ing from the increased agricultural production and from increased goods and services supplied for farm operation and for the farm family living. Public benefits include the value of increased opportunities for estab- lishment of fa~ly-sized farms. . Power and municipal water benefits from the Flattops unit were esti- mated on the basis of January 1956 costs. Power benefits were estimated as the cost of obtaining equivalent pover from steam-electric generating plants vhich are considered the cheapest alternative source of supply. Likewise nnL,icipal vater benefits were measured by the cost of obtaining a comparable municipal supply from the cheapest alternative source. Average Annual Equivalent Costs The average El!.lI)ual equivalent costs for each unit include the net capital investmentY amortized -with interest at 2.5-percent over 100 yes.rs; annual operation, maintenance, and replacement costs; and each unit's prorated share of the cost of regulatory facUi ties of the potential Colorado River storage project. To be consistent with the procedure used for previously analyzed units in the Cliffs-Divide Report, the share of the cost of regulatory features was based on a rate of .$2.50 for each acre-foot of depletion that a unit would cause in the flow of the Colorado River at Lee Ferry. This rate, however, is considerably more than the rate currently being used in analyses of ,participating projects of the Colorado River Storage project authorized by the Act of April 11, 1956. !/ interest value of Net investment is considered as total construction cost during construction minus the present vorth of terminal the reservoir basin. plus salvage . \ 2l