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Eugene -Springfield Area Natural Hazards Mitigation Plan 6. Appendices This is difficult to project. These considerations will also provide guidance in selecting an appropriate salvage value. Future tax structures and rates must be projected. Financing alternatives must be researched, and they may include retained earnings, bond and stock issues, and commercial loans. Consider costs and benefits to society and the environment. These are not easily measured but can be assessed through a variety of economic tools including existence value or contingent value theories. These theories provide quantitative data on the value people attribute to physical or social environments. Even without hard data, however, impacts of structural projects to the physical environment or to society should be considered when implementing mitigation projects. • Determine the correct discount rate. Determination of the discount rate can just be the risk -free cost of capital, but it may include the decision maker's time preference and a risk premium. Including inflation should also be considered. 3. Analyze and Rank the Activities Once costs and benefits have been quantified, economic analysis tools can rank the possible mitigation activities. Two methods for determining the best activities given varying costs and benefits include net present value and internal rate of return. Net present value. Net present value is the value of the expected future returns of an investment minus the value of the expected future cost expressed in today's dollars. If the net present value is greater than the projected costs, the project maybe determined feasible for implementation. Selecting the discount rate and identifying the present and future costs and benefits of the project calculates the net present value of projects. • Internal rate of return. Using the internal rate of return method to evaluate mitigation projects provides the interest rate equivalent to the dollar returns expected from the project. Once the rate has been calculated, it can be compared to rates earned by investing in alternative projects. Projects may be feasible to implement when the internal rate of return is greater than the total costs of the project. Once the mitigation projects are ranked, based on economic criteria, decision -makers can consider other factors, such as risk, project effectiveness, and economic, environmental, and social returns in choosing the appropriate project for implementation. Economic Returns of Natural Hazard Mitigation The estimation of economic returns, which accrue to building or land owners as a result of natural hazard mitigation, is difficult. Owners evaluating the economic feasibility of 6-125 January 2020