Economic Analysis Tools for Differential Inflation

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by Richard G. Allen, Utah State Univ, Logan, UT, USA,

Document Type: Proceeding Paper

Part of: Irrigation Systems for the 21st Century

Abstract: Economic decisions based on a life-cycle analysis should consider differential increases or decreases in operation and replacement costs and benefits over the project or component life. Much confusion has occurred in engineering evaluations regarding the proper use of nominal discount rates and real (inflation-free) discount rates and how to incorporate inflation effects into engineering economic analyses. This paper provides a straightforward approach for considering differential inflation and highlights proper equations. An example detailing incorporation of these equations into breakeven and benefit-cost analyses is included.

Subject Headings: Economic factors | Life cycles | Benefit cost ratios | Systems engineering | Construction costs | Lifeline systems |

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