Don't Discount the Discount Rate

摘要

In the most recent editions of this column, I walked through a lifecycle cost example highlighting quantifiable costs and benefits for analyzing a district cooling connection compared to a building-specific cooling plant. Jack Kattner, Kattner and Associates, and I also presented this information at the 102nd IDEA Annual Conference and Trade Show in Toronto. From the comments we received at the meeting, it was apparent that I had glossed over the importance of selecting an appropriate discount rate. I am not talking about a "five-finger discount" or a good buddy discount but essentially an interest rate that is used in economic analyses to "discount" or reduce the value of future cash flows in order to make a time-equivalent economic comparison.