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Choice of input values

Carrying out the present discount calculation is mechanical pot luck, but mechanical nevertheless. However, the choices of values for input variables will ultimately determine the results of the analysis and this is far from straightforward.

Choices may be divided into parameter values plus benefit and cost values. Parameter choices are aimed at estimating our future value of the costs and benefits, the most important of which is calculating the actual discount rate that the currency is predicted to be undergoing - that is the predicted rates of inflation (covered previously) and the future rates of technological change or changes in scientific knowledge, which can make things obsolete or massively reduce their value.

Benefit and cost choices can be broken down as follows:

  • Benefits
    • monetary values for marketed goods (i.e. what we sell)
    • monetary values for non-marketed goods, such as what we create, but which don't produce a financial profit in the direct sense of the word - for example, raising property value or company status
    • goods for which monetary values cannot be measured
  • Costs
    • monetary values for marketed input goods
    • monetary values for non-marketed goods that must be given up
    • costs for which monetary values cannot be measured

Remember that the values chosen for these variables will significantly influence the final values that are calculated. Therefore, the decision-maker must satisfy himself/herself that the values that have been chosen are reasonable.