Two aspects of the most favored investment criterion; discounted-cash-flow rate of return (DCFROR), continue to confound evaluation engineers. These are how to interpret the value obtained, and what to do when dual values arise. Using continuous discounting formulas, it is demonstrated mathematically that when a single value is obtained, DCFROR is the rate of return realized on the unamortized investment.

Three alternative investment criteria used to cover the breach caused by the occurence of dual values of DCFROR are a modified DCFROR, growth rate of return (GROR) and ratio of net present value to present worth of invesment (PWPI). It is shown that the modified procedure for computing DCFROR must be applied to all projects to obtain a consistent measure of investment performance; because a standard modification cannot be defined far all projects, modified DCFROR is unsatisfactory as an economic evaluation yardstick. PWPI always provides desired consistency. GROR, which is analytically related to PWPI, provides a consistent measure if the same year is used to compute the future value for all projects. As is demonstrated, with these latter two criteria care must be exercised to specify the investment properly.

Rapid increases in oil and gas prices, followed by similar runups in costs, followed in turn by a price decrease, have caused analysts to more commonly escalate prices and costs in evaluations. These escalated numbers may then; (1) be used directly, or (2) be deflated and the resulting values used, to calculate economic yardsticks. In the second case depreciation deductions are also deflated. The rates of return obtained via these two procedures differ by the inflation rate, but, if followed properly, both procedures yield the same value of PWPI.

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