Ron Kean wrote:
> Thank you, Mike, for the detailed explanation. I see that you talking
> about the lifetime cost per kwh assuming a 10 year life, 5% per year
> physical degradation, and and 5% per year 'Adjusted Discount Rate'.
>
> Now if a person's 'Adjusted Discount Rate' is 5%, then would not a dollar
> 3 years from now have a present value of $1.00 x (0.95)^3 = 86 cents?
> Same for a kwh. That said, and assuming the physical output drops
> suddenly by 5% at the end of each year, should not the table look
> something like this:
>
> Year Physical Output(kwh) Discounted output (kwh)
> 1 2000 x(0.95)^0.5 1949
> 2 1900 x(0.95)^1.5 1759
> 3 1805 x(0.95)^2.5 1588
> 4 1715 x(0.95)^3.5 1433
> 5 1629 x(0.95)^4.5 1293
> 6 1548 x(0.95)^5.5 1167
> 7 1471 x(0.95)^6.5 1054
> 8 1396 x(0.95)^7.5 950
> 9 1326 x(0.95)^8.5 857
> 10 1260 x(0.95)^9.5 774
I'm not sure if this is right. It's been awhile for me to deal with this method. Perhaps the economists on the list could help out. It seems to me that each year's output would be discounted by the discount rate for that year in particular, however I gather from your suggestion is that the discount rate for later years is discounted further. This may be right, I don't know.
--
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Michael S. Lorrey
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