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An Assets Approach to Estimating the Discount Rate for Public Investments.
AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OH SCHOOL OF ENGINEERING
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This thesis effort determined the discount rate to employ in public investment analysis is the weighted average of the rates of return available in the corporate and non-corporate sectors of the American economic market. The weights used also reflect the percentage of the overall market encompassed by the corporate and non-corporate sectors. This study also presented a methodology used previoiusly by Jacob Stockfisch 45 for estimating the rate of return for both the corporate sector and the non-corporate sector. In this study the writer estimates the real rate of return to use in evaluating public investments to be on the order of 5 to 8 percent for the period 1970-1980. This estimate is compared to the 10 percent real rate of return employed by Department of Defense DoD analysts and the impacts of employing an incorrect discount rate are assessed. The writer concludes that the findings of this study raise serious questions about the 10 percent real discount rate employed by DoD analysts, but a strong conclusion is not possible without additional study and analysis. Originator supplied keywords include Discount Rate, Rate of Return, Economic Analysis, Cost Effectiveness.
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