-r1/001
        United States
        Environmental Protection
        Agency
Office of Water
Enforcement and Permits
Washington, DC 20460
September 5, 1990
        Guidance Manual for
        POTWS to Calculate
        the Economic Benefit
        of Noncompliance

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                                                                   c

              UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                         WASHINGTON, D.C.  20460
                             OCT 11
                                                      OFFICE OF WATER
To: Regional and State Pretreatment Coordinators


     Enclosed is the final version of the Guidance Manual  for
POTWs to Calculate the Economic Benefit of Noncompliance  (P-BEN).
The document describes the step-by-step procedure that  Control
Authorities may use to manually calculate the economic  benefit  an
industrial user is expected to have realized by delaying
installation or proper operation of pretreatment equipment.  The
manual calculation described in this document is based  on  the
theory and methodology used in EPA's BEN computer model (as
revised, July, 1990) .

     In order to make P-BEN as "user-friendly" as possible,  this
guidance document avoids use of economic jargon.  This  should not
undermine the economic integrity of the method.  Similarly,  in
order to facilitate a manual economic benefit calculation,
certain simplifications of the BEN calculation methodology were
necessary.  In some circumstances these simplifications may
result in an economic benefit calculation which differs slightly
from that of the BEN computer program.

     EPA has revised the BEN computer model and will make  that
software available to POTWs, upon request, on floppy disks in
early 1991.  POTWs using software to calculate economic benefit
will then be using precisely the same software program  as  EPA.
POTWs which choose to calculate economic benefit manually  should
use the process identified in the manual enclosed here.

     If you have questions about the P-BEN methodology  or  need
assistance in explaining P-BEN to your constituent POTWs,  please
call Greg Marshall of the Policy Development Branch at  (FTS) 382-
7745.
                                   Sincerely,
                                   James R. Elder, Director
                                   Office of Water Enforcement
                                     and Permits
Enclosure
                                                         Printed on Recycled Paper

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    GUIDANCE MANUAL FOR POTWS TO CALCULATE
THE ECONOMIC BENEFIT OF NONCOMPLIANCE
              Office of Water Enforcement and Permits
               U.S. Environmental Protection Agency
                     401 M Street, SW
                   Washington, DC 20460
                     September 5, 1990

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                           DISCLAIMER
     This Pretreatment Economic Benefits (P-BEN) guidance document  was
developed  by   the   Office  of  Water  Enforcement   and  Permits,  U.S.
Environmental  Protection  Agency,   reviewed  by  the  EPA   Office  of
Enforcement, and approved for distribution.

     This document provides  a means  of manually calculating the economic
benefit  an  industrial  user  accrued  by  not  complying  with  pretreatment
standards   and   requirements  on  time.    The  P-BEN  method  closely
approximates the  U.S.  Environmental  Protection Agency's BEN computer
program  (as  revised  in July,  1990)  for  those cases in  which pretreatment
violations began in 1987 or later.  The economic benefit value derived from
the  manual  P-BEN  method   may differ  slightly from  that  of  the  BEN
computer program because of the simplified nature of the P-BEN calculation.
The  P-BEN method of calculating economic benefit should be  used if  the
BEN computer program is unavailable.  For those cases  in which pretreatment
violations occurred prior to 1987 (when new tax  laws  became effective)  the
BEN program must be used since the differences  between the P-BEN results
and the BEN program are likely to  be more pronounced.

     This guidance  document is  intended for the  use of POTW enforcement
personnel  in  estimating  the  economic  benefit  of  noncompliance  with
pretreatment  standards  and  requirements  for purposes  of  calculating  a
settlement penalty.  This guidance document creates no rights, is  not  binding
on  U.S.  EPA,  and EPA may change this  guidance   without notice.   The
mention  of any  trade  names or commercial  products  constitutes  neither an
Agency endorsement nor recommendation for use.
     This document was prepared with the assistance  of Science Applications
International Corporation of McLean, Virginia under Contract No.  68-C8-
0066.   A  technical  review was conducted  by  Gail  Coad of  Industrial
Economics, Inc. of Cambridge, Massachusetts.

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                         TABLE OF CONTENTS



     CONTENTS                                                 PAGE

     DISCLAIMER                                                    ii

1.    INTRODUCTION                                                 1-1

     1.1   PURPOSE OF THIS MANUAL                                   1-1
     1.2   ORGANIZATION OF THIS MANUAL                              1-1
     1.3   WHAT IS ECONOMIC BENEFIT?                                1-1
     1.4   PURPOSE OF PENALTIES IN PRETREATMENT ENFORCEMENT         1-2


2.    PROCEDURE TO CALCULATE ECONOMIC BENEFIT                      2-1

     2.1   STEP A - PROVIDE GENERAL INFORMATION                      2-1
     2.2   STEP B - COMPILE FINANCIAL FACTORS                         2-2
     2.3   STEP C - OBTAIN ENGINEERING COST ESTIMATES                 2-4
     2.4   STEP D - CALCULATE COST OF ON-TIME COMPLIANCE             2-6
     2.5   STEP E - CALCULATE COST OF DELAYED COMPLIANCE             2-9
     2.6   STEP F - CALCULATE NET ECONOMIC BENEFIT                  2-10


3.    OTHER CONSIDERATIONS IN DEVELOPING A SETTLEMENT PENALTY       3-1

     3.1   GRAVITY OF VIOLATION                                     3-1
     3.2   ADJUSTMENT FACTORS                                      3-3
     3.3   AMOUNTS PREVIOUSLY PAID                                  3-4


GLOSSARY


APPENDIX A - METHOD FOR CALCULATING ECONOMIC BENEFIT              A-l

APPENDIX B - WORKSHEET TO CALCULATE ECONOMIC BENEFIT              B-l

APPENDIX C - INFLATION AND DISCOUNT VALUES                          C-l

APPENDIX D - DISCOUNTING TABLES                                     D-l



                          LIST OF FIGURES

FIGURE

2-1.   ECONOMIC BENEFIT WORKSHEET                                  2-12

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                                     1. INTRODUCTION
1.1  PURPOSE OF THIS  MANUAL

       This manual provides guidance to municipalities'in determining the amount of "economic
benefit" a firm is expected to have gained by delaying compliance with pretreatment requirements.
The methodology presented  here for calculating economic benefit is a simplified, step-by-stcp
manual version of U.S. Environmental Protection Agency's (EPA) BEN computer program.'

       This guidance is consistent with EPA's Clean Water Act Penalty Policy  for Civil
Settlement Negotiations (February, 1986) and tracks closely the methodology for calculating
economic benefit using the BEN computer program.   EPA strives to obtain settlement penalties
for Clean Water Act violations that remove, at a minimum, the economic benefit to an  industrial
user by it's noncompliance.   An additional monetary amount  reflecting the seriousness or gravity
of the violations is also sought.  Consistent national  application of this policy will ensure that all
members of the regulated community have a strong economic incentive  to comply in  a  timely
manner with environmental laws.   Thus, U.S.  EPA urges all  municipalities, especially those with
an approved pretreatment program, to calculate an industrial user's economic benefit of
noncompliance with pretreatment standards and requirements  and  to use this amount, plus an
additional amount  which reflects the gravity of the violations, as the lowest acceptable settlement
penalty.
1.2  ORGANIZATION OF THIS MANUAL

       Chapter 1 of this guidance manual describes the economic benefit of noncompliance and
discusses the importance of assessing penalties for pretreatment violations.  Chapter 2 outlines the
procedure to calculate economic benefit.   Chapter 3  discusses other factors that the POTW may
consider in determining an appropriate penalty amount.  A glossary of terms and four appendices
follow the main body of the text.  Appendix A describes  in some detail the technical method and
financial principles  used to calculate economic benefit.  Appendix B contains a blank worksheet
for the POTW to copy  and  use in calculating economic benefit.   Appendix C contains annual
inflation rates and discount rates, and Appendix D presents tables of discounting and/or adjustment
factors to  be used with  the worksheet to calculate economic benefit.
1.3  WHAT IS ECONOMIC  BENEFIT?

       A firm must usually spend money to comply with pretreatment standards and requirements.
The  firm makes initial capital expenditures for pretreatment equipment or process changes and
incurs subsequent operation, maintenance, and repair costs annually.  By delaying or avoiding
    1  See BEN: A  Model to Calculate the  Economic  Benefit of Noncompliance, User's Manual, U.S. Environmental
Protection Agency, Office of Enforcement, Revised July 1990. A copy of the BEN manual may be obtained from the National
Technical  Information Service (NT1S) by calling (703) 487-4650.  A copy of the BEN software program on a floppy disk, for
use in an  IBM compatible personal computer, should be available in 1991.


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these costs, the firm realizes an economic advantage or benefit over a competitor which complied
with pretreatment requirements on time.  Thus, the "economic benefit"  of noncompliance is
defined as the difference between the costs of on-time compliance  and delayed compliance.
Economic benefits realized by the firm which fails to comply by a required deadline can be
measured by:


        •       The money that the firm would expect to earn by delaying the purchase  of
               pretreatment equipment  and investing the money in  more  profitable projects.

        •       The annual costs that the  firm avoids, and the expected return on avoided costs
               during the period of noncompliance.

        •       Any competitive advantage the firm may gain, such as increased market  share over
               competitors already in compliance, because of cost advantages attributed  to delayed
               compliance.

        In this guidance manual, the economic benefit calculation is focused on the first two
benefits.  The calculation does not attempt to address the third benefit, which is generally of a
market-specific nature and not conducive to individual firm modelling.1
1.4  PURPOSE OF PENALTIES IN PRETREATMENT ENFORCEMENT

       Municipalities need to assess  penalties against industrial violators for several purposes,
including:
        •       To remove the economic benefit  a  firm gains over others by not
               complying.

        •       To deter future noncompliance by providing an incentive  for users
               to remain in compliance (that is,  to avoid costly financial
               sanctions).

        •       To provide  fair and equitable  treatment to all members  of the
               regulated  community.

        •       To promote swift and consistent resolution of environmental problems

        •       To maintain compliance, and
    1  For many violators,  removing the economic benefit realized from delaying compliance will negate any competitive
advantage that the firm gained from in noncompliance.  However, in some cases, the violator may  have gained  additional
advantage during the period of noncompliance by improving its market share of goods and services as a result of cost savings.
This "benefit from  competitive advantage" is not actually a cost savings of  noncompliance; rather, it is additional revenue
gained through noncompliance.  No attempt is made here to describe the calculation of the benefit from competitive advantage.
Such a calculation requires estimating profits from transactions that may not have occurred had the firm complied.   Such an
estimate must be based on a detailed economic evaluation of the firm and its competitors, rather than on  a generic formula.

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        •       To recover for damages to public facilities and/or natural resources.


Each of these purposes is discussed briefly in the following subsections.


1.4.1  To Remove Economic Benefits of Noncompliance

        A firm which fails to comply with pretreatment requirements in a timely manner may
accrue a significant economic benefit.  A penalty assessed against the violator should at least
"take away" this economic benefit and make it unprofitable  for the firm to ignore  or violate
pretreatment requirements. These requirements include installation of pretreatment equipment, one-
time expenditures (e.g. land) and operation and maintenance (O&M) or other annual costs.  The
economic benefit calculation described in this guidance manual can be applied to any or all types
of pollution control costs.  For example, the economic benefit calculation for a firm which failed
to install pretreatment equipment altogether will be based on capital and annual costs.  On the
other hand, if a firm installed pretreatment equipment but failed to adequately operate and
maintain such equipment, the economic benefit would  be based on the annual cost elements  of the
calculation.


1.4.2  To Deter Future Noncompliance

        The intent of penalties is to  deter noncompliance so that pollutant discharges by industry
do not have significant negative impacts on  sewage treatment plants, collection systems or
receiving waters. If the  POTW assesses a penalty that is too small (that is, less than the
economic benefit from noncomplying), the violating firm and other firms may determine that
noncompliance is less expensive than compliance.  Therefore, to be effective in deterring  future
noncompliance,  penalties must make noncompliance more costly than compliance.


1.4.3  To Provide Fair  and Equitable Treatment

        Treating all users fairly and  equitably requires that the POTW assess penalties using  a
consistent methodology.  Allowing one firm  to realize  an economic benefit from noncompliance
potentially enables it to gain an economic advantage over complying firms.  By  assessing a
penalty based  on economic benefit, the POTW strives to eliminate or remove any  financial
advantage the  violator gains.

        By exercising  a consistent penalty methodology, the  POTW ensures that all violators  are
treated equitably.  While the amount of the  penalty will vary from case to case, the method  used
to develop the penalty should be consistent.   As each POTW implements a uniform  penalty
policy, including removal of economic benefit,  nationwide consistency will increase.  Such
consistency will reduce the possibility that firms can evade pretreatment costs by relocating to
areas where pretreatment requirements might otherwise have been more  lax.  EPA is working to
ensure that the Clean  Water Act Penalty Policy is consistently applied by municipalities
throughout the country to provide fair and equitable treatment of industry.
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1.4.4  To Promote Swift and Consistent Resolution of Environmental Problems

       A consistent and  logical basis for establishing civil penalties helps to promote swift
resolution of environmental problems.  When the regulated community understands the penalty
policy and is capable  of  estimating potential penalties itself,  the imposition of civil penalties
appears  predictable and challenges claiming the penalty to be arbitrary are reduced.


1.4.5  To Maintain Compliance

       After a firm installs the appropriate pollution control equipment to comply with applicable
pretreatment regulations,  maintaining compliance requires continuing O&M and other annual
expenditures.  For industrial users which fail to comply with pretreatment requirements, the
POTW should design  its  penalties to remove, at a minimum, the economic benefit from avoided
annual costs during its period of violation.  Assessing a penalty which, at a minimum, eliminates
the economic benefit of noncompliance (or makes noncompliance  more expensive than
compliance) encourages firms to remain in compliance.


1.4.6  To Recover for Damages to Public Facilities and/or Natural Resources

       Failure to comply with pretreatment requirements  may cause damage to the collection
system and POTW serving the violating firm.  Damage may also  be  caused to the natural
environment.  Therefore,  an additional purpose of penalties in pretreatment enforcement might be
to recover for such damages.  Specifically, the POTW might conclude that a violating firm should
pay for  reparations to any damages  caused to the collection  system by improper  disposal  of
pollutants. Such  a firm might pay for replacement of equipment,  facilities and/or other damaged
processes at the POTW caused by pollutant interference.  Pollutants which pass through or
interfered with POTW processes, may cause damage to natural systems in receiving waters.  In
addition to assessing penalties  to recover for such damages,  the POTW may consider requiring
mitigation and remediation programs.
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                2.  PROCEDURE TO CALCULATE ECONOMIC BENEFIT
       This chapter presents step-by-step instructions to calculate the economic benefit a firm
may have obtained by its failure to comply with pretreatment requirements in a timely manner.
This procedure involves the following six steps:

     •  Step A - Provide general information on violator

     •  Step B - Compile appropriate financial factors

     •  Step C - Obtain engineering cost estimates

     •  Step D - Calculate the cost of on-time compliance as of the base-year

     •  Step E - Calculate the cost of delayed compliance as of the base-year

     •  Step F -  Calculate the net economic benefit.


     For the POTW's convenience, an Economic Benefit Worksheet with these six steps has been
developed on which the economic benefit component of a civil settlement penalty can be
calculated.  (Appendix B contains a blank copy of the  Economic  Benefit Worksheet which can be
copied for POTW use.)  Each  section of the Worksheet builds on the information in sections
preceding it.  For example, in  Steps A, B, and C, factors are developed that will be used in
estimating the economic benefits of noncompliance as described in Steps D through F.  Each line
on the Worksheet is labeled in the right-hand column (e.g.  "Al" refers to the first line of Step
A).  These labels are used as cross-references on subsequent sections of the Worksheet so that the
POTW staff member can quickly find the data  needed  to complete the Worksheet.

     This chapter explains the procedures used to perform each step of the analysis.  To illustrate
the procedure more fully, the  steps are explained using an example  case of XYZ Manufacturers,
Inc., a violating firm discharging into the POTW in  Anytown, USA.  Figure 2-1  is the Economic
Benefit Worksheet completed  for the  hypothetical situation of XYZ  Manufacturers,  Inc (see page
2-11).  For a more detailed explanation of the economic benefit methodology, refer to Appendix
A.  Note that each step  builds on previous steps. For  example. Step C converts  all pollution
control expenditures to  base-year (year of noncompliance, see Section 2.3.1) dollars which are
then used throughout the rest of the calculation.  To arrive at a net  economic benefit figure at the
penalty payment date. Step F serves to convert the net  economic benefit as of the noncompliance
date to the appropriate amount as of the penalty payment date.
2.1  STEP A - PROVIDE GENERAL INFORMATION

     The economic benefit calculation begins with Step A of the Worksheet (General Information)
wherein the violator is identified and the time period during which the violator received an
economic benefit is established.  The key dates in this section are used later in the calculation.
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        Case name - On Line A01, the industrial violator's name or another
        appropriate identifier is entered.  In Figure 2-1, the case name is our example
        violator, XYZ Manufacturers, Inc.

        Date when noncompliance began - On Line A02, the month and year when
        the violator first failed to comply with pretreatment requirements are
        entered.  This date (the base-year) is used later for calculations in Step C of the
        Worksheet. In our example, XYZ Manufacturers, Inc. began noncompliance in
        August 1987.

        Date of compliance - On  Line A03, the month and  year that the violator achieved
        compliance are entered.  This is the date on which the violator's pretreatment
        equipment is operating and achieving compliance.  In  our example,  XYZ Manufacturers,
        Inc. achieved compliance in October 1989.

        Penalty payment date - On Line A04, the month and year that the  industry
        is expected to pay its penalty are entered.  The  penalty payment date is  used
        in  Step F in calculating the net economic  benefit component of the  civil penalty
        to  be paid.  In our example, XYZ Manufacturers, Inc. is scheduled  to pay its
        penalty in January 1990.

        Number of months of noncompliance - On Line A05, the number of months that the
        violator was out of compliance (its  period of noncompliance) is  entered.  This
        number is obtained by counting the number of months between the  date when
        noncompliance began (Line A02) and the  date when compliance was achieved (Line
        A03).  It is used in Step E to take into account the delay in compliance by the violator.
        For example, XYZ Manufacturers, Inc. was out of compliance  for 2 years and 2 months
        or  26 months.

        Number of months between noncompliance and payment - On Line A06, the number
        of  months  between  the noncompliance date and the scheduled payment date is
        entered.  This number is obtained by again subtracting Line A02 (date when
        noncompliance began)  from the scheduled payment date (Line A04). The number is  used
        in  Step F when the actual net economic benefit amount is calculated.  For  XYZ
        Manufacturers, Inc., this value is 2 years and 5 months or 29 months.
2.2 STEP B - COMPILE FINANCIAL FACTORS

     In Step B, three financial values -- the marginal tax rate, the annual inflation rate, and the
discount rate ~ are determined.  These values, which are defined below, are used in Steps C,  D
and E to calculate the economic  benefit derived  from noncompliance.
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2.2.1  Marginal Tax Rate

     The marginal tax rate reflects the amount of money a firm must pay to Federal, State, and
local tax authorities on the last dollar of its income.1  Costs incurred as a result of installing and
operating pretreatment equipment are deducted from, and therefore lower, a firm's taxable income.
Thus, the actual "out of pocket" expenditures  for pretreatment are reduced by this tax savings.
Based  on current tax laws, the  average marginal corporate tax rate, including typical marginal
state taxes, is 38.4 percent.2  For not-for-profit organizations, the tax rate is zero.

     On Line B01, the tax rate for the violator  is entered.  For XYZ Manufacturers, Inc., the
marginal tax rate of 38.4 percent is used.  This value  should generally be used for calculating the
economic benefit to industrial facilities.   The marginal tax rate is used later in Step D.


2.2.2  Annual Inflation Rate

     The annual inflation  rate is a measure of the  increase in the price  of goods and services
over time.   Because inflation reduces the purchasing power of money (that is, the same amount of
money buys fewer goods and services) over time, the  annual inflation rate is  used to  adjust and
compare costs occurring in different years.  Numerous indices are available to quantify inflation
rates.  Cost indices appropriate  for estimating  the inflation rate for pretreatment equipment are:

        -  Plant Cost Index, published in Chemical Engineering  magazine

        -  Construction Cost Index, published in Engineering News Record magazine

        -  POTW cost indices, published by EPA's Office of Municipal Pollution Control.

     While the  Consumer Price Index (CPI) is frequently used in measuring inflation, it covers  a
broad range of consumer products (such as food and housing) and therefore is not appropriate for
estimating  specific  changes in the price  of a homogeneous product such as pretreatment
equipment.

     The annual average inflation rate during the past five years is recorded on Line B02.
This value is derived by averaging the annual inflation rates for  the past five years. To simplify
further calculations, the average annual inflation is  rounded off to the nearest one-half or full
percent.  For the example, the annual inflation rates for the years 1985 through 1989  (from
Appendix C-l) are added and divided by five, resulting in the average annual inflation rate of two
percent.  Annual inflation  rates  for  1980 through  1989 based on  Chemical Engineering's annual
Plant Cost Index can be found  in Appendix C-l.  The annual average inflation  rate is used in
Steps C, D, and E.
    1  Note that this is different than the "average" tax rate that a firm pays, which measures total taxes paid relative to total
taxable income.

    1  The federal marginal rate is 34% and the average state marginal tax rate is 4.4%. Summing these two numbers yields
the average marginal corporate tax rate of 38.4%.


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2.23  Discount Rate

     Money has a "time value" associated with it.  This time value of money  means that a dollar
today is generally worth more than a dollar a year from now because today's dollar can be
invested to earn a return over the coming year.  For example, if the  firm delays a $100 purchase
of pretreatment equipment and invests that $100 available today in a variety of investments, with
an expected average annual return of 15  percent, one year from today the  firm will have $115.
Therefore, equal dollar expenditures occurring in different years do not have equal financial value
impacts on the violator.  Simply stated, $100 spent  today,  the "present value",  is not  equivalent to
an expenditure of $100 a year from now. (In this example, $100 today is equivalent to $115 a
year from now.)  When comparing dollar amounts or expenditures from two different years, a
common standard must be employed, namely expressing the dollar amounts in  the same "year
dollars."  The technique of converting dollar values to a common year is called discounting.

     For this economic benefit calculation,  the discount rate is based on the average  return that a
corporation expects  to  earn and deliver to its investors.  In Lines  B03 through B05, the discount
rate is determined in a two-step process.  On Line  B03, the annual rate of return  (i.e., the
yields) on a  30-year Treasury Bond for each of the past 5 years is entered and  the average
(the sum of  the values divided by 5) is calculated.  Annual average rates of return on 30-year
Treasury bonds purchased between 1980  and  1989 are found in Appendix  C-2. For XYZ
Manufacturers, Inc., the annual average rate of return from 1985 to 1989 (from Appendix  C-2) are
entered, added, and divided by 5  to yield an annual average rate of 8.9 percent.

     A risk  premium rate is entered on Line B04.  The risk premium rate  attempts  to reflect
the intrinsic level of risk associated with  investing in a given industry group.  Since a  higher rate
of return is expected from an investment  in private  business compared to a risk-free investment
(such as a bank certificate of deposit),  the investor needs to be  compensated for the investment's
uncertainty.  This extra compensation is called the risk premium rate.  For the pretreatment
economic benefit calculation, the long-term (1926-1989) average equity risk premium rate of 7.5
percent is used.3

     The discount  rate in Line  BOS is  derived by adding Line B03 (the annual average rate
of return on 30-year  Treasury bonds)  and Line B04  (the risk premium rate).  This number,
expressed as a percentage, is entered on  Line BOS.  As  with the annual average inflation  rate,
the discount rate should be rounded to the nearest one-half or full percent. This rate is used later
in Steps D, E,  and  F.  The discount rate  is rounded off to  16.5 percent for XYZ Manufacturers,
Inc.
2.3  STEP C -  OBTAIN ENGINEERING COST ESTIMATES

     In Step C,  the POTW obtains engineering cost estimates, such as initial capital investment
costs, other "one-time" capital expenditures,  and annual costs.  These estimates are then convened
to base-year dollars as described in Section  2.3.1 below.  Relevant terms for this Step are briefly
defined below.
    1 Stocks. Bonds. Bills and Inflation: 1990 Yearbook. Ibbouon Associates (Chicago, 1990), p. 121.


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     •  Initial capital investment costs • Up-front expenditures  for all depreciable assets.
        Depreciable assets are those which, through time or normal wear and tear, will
        require replacement or renewal.   TTiese will include costs associated  with
        architectural and engineering design, site preparation, construction, and machinery
        and equipment.  Costs of installing equipment are included here, as are all sales
        taxes paid on the equipment.

     •  One-time expenditures • Nondepreciable costs incurred  upon  implementation of
        pretreatment but not again thereafter.  Such expenditures might include land
        purchases or setting up a record  keeping system.  These costs will not be
        incurred again when capital equipment is  replaced.

     •  Annual costs - Costs  incurred every year to operate and maintain the
        pretreatment system when the company comes into compliance, including the
        costs  of labor, utilities, chemicals, materials, and repairs.  Annual costs could
        also  include costs of leasing equipment or user fees.

     Dollar estimates for these costs can  be obtained from various sources, including actual bids
received by the firm, price quotes from equipment manufacturers, and EPA publications (such as
the development documents for effluent guidelines available from the  Industrial Technology
Division).   The estimated costs of the initial  capital investments in pretreatment  equipment,
one-time expenditures, and annual costs are entered in Lines C01, C06, and Cll,
respectively.   In this example, POTW personnel estimate that pretreatment equipment needed by
XYZ Manufacturers, Inc. will cost $110,000 in 1988 dollars (Line C01), that one-time
expenditures will cost $30,000 in 1989 dollars  (Line C06), and the annual costs will  run $25,000
annually in 1988 dollars (Line Cll).


2.3.1  Adjusting for Inflation

     In the simplest of situations, the total engineering cost estimate equals the sum  of initial
capital investment cost  plus other one-time expenditures plus annual costs (Lines C01 + C06 +
Cll).  However, in  those cases where the cost estimates for the various engineering cost
components are expressed in different "year-dollars", adjustments to the cost estimates in Lines
C01, C06,  and Cll  are necessary to account for the effect of inflation.  In order to make this
adjustment, the appropriate year-dollars for these three cost components are first  entered
on  Lines C02, C07, and C12. For example, in collecting cost  estimates necessary to  develop  an
economic benefit calculation for XYZ Manufacturers, Inc.'s period of noncompliance, the POTW
obtained initial capital investment costs and annual costs in 1988 year-dollars and one time
expenditures in 1989 year-dollars.  In this example,  1988 is entered on Lines C02 and  C12, and
1989 is entered in Line  C07.

     The goal of this exercise is to  "normalize", as  of the noncompliance year, 1987, the various
year-dollar  costs (in this case,  1988  and 1989)  by  taking into account the impacts of inflation on
the purchasing power of money.  This is  accomplished by converting  all year dollar estimates into
base-year dollars.  The base-year selected should be the year in which noncompliance began
as recorded in Line A02.  In this example, XYZ Manufacturers, Inc. became noncompliant in
1987.  Therefore, the capital investment costs and  annual costs must be converted from 1988
year-dollars to 1987 base-year  dollars, and the  one-time capital expenditures must be  converted
                                            2-5

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from 1989 year-dollars to 1987 dollars.  This conversion to base-year dollars is  accomplished by
dividing the estimated costs by what is known as the "inflation adjustment factor".

     The  correct inflation adjustment factor is found using two easily derived numbers.  The first
number is the difference  between the year-dollars and the appropriate base-year.  The resulting
difference is known as the "adjustment period."  The adjustment periods for initial capital
investments, one-time expenditures, and annual costs are entered into Lines C03, COS, and
C13, respectively.  For example, in  our XYZ Manufacturers, Inc. case, the difference between
1989, the  year-dollars in  which one-time  capital expenditures were expressed, and 1987,  the base-
year, is two years (1989  minus 1987 equals 2).

     The  second number needed to identify the appropriate inflation adjustment factor is the
average annual inflation rate.   Step B discussed how to obtain the average annual inflation rate
which is recorded on Line B02. Using the calculated average annual inflation rate and the
adjustment factor, the inflation adjustment factor can be found in Appendix D-l. These factors
for the initial capital investment cost, one-time expenditures, and annual costs are entered
into Lines C04, C09, and C14 of the Economic Benefit Worksheet,  respectively.  Using
Appendix  D-l for our one-time expenditures example, a 2-year period and 2 percent inflation rate
yields an  inflation adjustment factor  of 1.040  percent.   This value is entered on Line C09.

     The  costs recorded  in Lines C01, C06, and Cll can now be readily converted into base-year
dollars by dividing them  by the relevant inflation adjustment factors recorded in Lines C04, C09,
and C14.  The costs in base-year  dollars are entered  in Lines COS, CIO, and CIS.  Using the
inflation adjustment factors in  the case example, the initial capital investment in base-year dollars
is $107,843; the one-time expenditures in base-year  dollars is $28,846;  and annual costs  in base-
year dollars are $24,510.


2.3.2  Useful  Life of Equipment

     The  last  information entered in Step C is the useful life of the pretreatment equipment. This
is the number of years that the equipment is expected to stay in operation before it must be
replaced.  EPA generally estimates the average useful life of pollution control equipment to be  15
years; however, for  specific cases,  this estimate may be higher or lower.  For example, pumps
and other  mechanical equipment may need to be replaced every 5 years, while buried pipes often
last for 40 years or more. The average  useful life of all equipment required for compliance
is entered on Line C16.  In the example, EPA's standard value of 15  years is  used.
2.4  STEP D - CALCULATE ESTIMATED COST OF ON-TIME COMPLIANCE

     Step D  calculates the cost of "on-time" compliance.  This is the cost that the violating firm
would have incurred had it complied with all applicable pretreatment requirements within the
prescribed time frame. In order to calculate the  cost of on-time compliance, the POTW needs to
know or estimate the violator's initial investment costs  for the pretreatment equipment, other one-
time expenditures, annual costs, and costs to replace the equipment when it wears out or breaks
down.  Thus, the engineering cost estimates from Step  C are  important inputs to the  calculations
performed in  this step.
                                            2-6

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      One new factor is introduced in Step D -- depreciation tax savings.  These tax savings
 accrue to the firm over the depreciable life of the pretreatment equipment to reflect its wear and
 tear.4  In order to appropriately add or subtract the costs developed in this step, all costs are
 adjusted to  base-year dollars.  The following discussion of Step D is organized into five
 subsections  corresponding to the five substeps in Step D:

      •   Initial investment

      •   Depreciation tax savings

      •   Annual costs

      •   Cost of all subsequent equipment replacements

      •   Total cost of on-time compliance.

 Procedures  for performing each substep are detailed below.


 2.4.1  Initial Investment

      Determining  the "first cycle" initial investment in pretreatment  equipment requires  taking the
 initial capital investment (expressed in base-year dollars) from Line COS and  the one-time
 expenditures (also expressed in base-year dollars) from Line CIO and entering them in Lines
 D01 and D02, respectively.  In the example, the amount of $107,843 is recorded in Line D01
 and  the amount of $28,846 is  recorded in Line D02.  If the one-time expenditures are tax-
 deductible, an adjustment is necessary to take into account the after-tax cost of these
 expenditures.1  To  calculate the tax  savings from making one-time expenditures (that is, the
 reduction in income tax due to a  decrease in taxable  income that results from  the deductible
 expense), multiply Line D02  by  the marginal tax rate (0384, which is the  same as  38.4%),
 which appears  in  Line B01.  The result, a tax savings, is entered in Line  D03.  In  our
 example case, the  total tax savings amounts to  $11,077.  Subtracting the tax  savings (recorded
 in Line  D03) from the one-time expenditure  in base-year dollars (recorded in Line D02)
 yields after-tax one-time  expenditures of $17,769.  The total cost of investment,  as  of the
 base-year, is then found  by adding together  the  initial capital investment and after tax one-
 time expenditures (adding Lines D01 and D04 to yield Line DOS).  For XYZ Manufacturer,
 Inc., the total base-year (1987) cost of initial pretreatment equipment is $125,612.


 2.4.2  Depreciation Tax Savings

      In the  second pan of Step D, tax savings  from annual depreciation (that is, the yearly
 decrease in  the value of the pretreatment equipment due to wear, deterioration, or obsolescence)
    4  Depreciation it  how  companies can deduct the costs of equipment or other long-lived assets against their taxable
income. The tax code does not permit a company to deduct the full cost of equipment or other assets in a single year.

    *  Almost all one-time expenditures will be tax-deductible. The primary exception is the purchase of land which is a non-
depreciable asset.

                                              2-7

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are calculated.  This is a savings that accrues to the company in the form of reduced taxes as it
deducts the depreciation of capital investments from its taxable income.


     The pretreatment economic benefit model (P-BEN) uses what is termed a "straight  line"
depreciation method to keep deductions for annual depreciation constant.  (This is consistent with
tax code requirements for 1987 and later, Appendix A explains this assumption in detail.)  The
equipment is fully depreciated over a seven-year period although its useful life may be much
longer.  The standard depreciation period of seven years is recorded in Line D06.  The
annual depreciation is  calculated on Line D07  and is the initial capital investment (Line
D01) divided by the depreciation period  (Line  D06).  In this example, $107,843 divided by 7
yields $15,406.  The  annual tax savings is then derived on Line DOS as the product of the
annual depreciation (Line D07) and the marginal tax rate (0384; Line B01).  In our
example, the result is $5,916.

     Lines D09 through Dll calculate the  projected annual tax savings accrued to  the facility
over a 7-year depreciation period.  The depreciation tax savings discount rate is equal to the
discount rate recorded in Line BOS.  The value in Line BOS is entered in  Line D09.  In our
example, 16.5 percent (Line BOS) is entered on Line D09.

     In Line D10, the discounting factor is found using Appendix D-2.  Finding the appropriate
discounting factor in Appendix D-2 requires two numbers:  the number of years in the
depreciation period and  the depreciation tax savings discount rate.  These are recorded in Lines
D06 and D09, respectively.  The discounting factor, taken from Appendix D-2,  is entered in
Line D10.  In our example, the depreciation period of 7 years is  used with the discount rate of
16.5 to obtain the discounting factor of 3.980.

     In Line Dll, the  base-year value of tax savings is  found by multiplying the annual tax
savings (Line DOS) by  the discounting factor (Line  D10).  In this example,  the tax savings as
of the  base-year is $23,546.


2.43  Annual Costs

     Lines D12 through D17 calculate the  after-tax costs of annual expenditures as  of the base-
year.  In Line D12, the before-tax  annual cost  (in base-year dollars) from  Line CIS is
entered. In order to calculate the after-tax annual costs (Line D13), Line D12 is multiplied
by 0.616 (which is one minus the marginal tax rate of 0384).  In our example,  the result is
entered in Line D13 as  $15,098 ($24,510 multiplied by 0.616).

     Line D14 is the useful life of pretreatment equipment expressed in years.  This was
previously recorded in Line C16.

     Line DI5 adjusts the discount rate to remove the effect of inflation.6  Line D15 is
calculated  by subtracting the annual inflation rate (Line B02) from the discount rate (Line
805).  In this example,  16.5 percent minus 2 percent equals 14.5 percent, which is  entered on
Line D15.  The next item (Line D16) is derived from the table of calculated values in
Appendix D-2.   Two numbers are needed, (1)  the expected life of the pretreatment
    ' The associated calculations are performed in "real-dollars".

                                             2-8

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equipment (from Line  D14) and (2) the inflation adjusted discount rate (Line D15).  In this
case, the estimated life of 15 years and the inflation adjusted discount rate of 14.5 percent result
in a discounting factor of 5.992. In  Line D17, the discounting factor found in Line D16 is
multiplied by the after-tax annual costs (Line D13) to yield the after-tax annual costs as of
the base-year.  In the example, the amount is  $90,467 ($15,098 multiplied by 5.992).


2.4.4  Cost of  All Subsequent Equipment Replacements

     The fourth part of  Step D is used to calculate the costs to replace required pretreatment
equipment after its useful life is over. The costs of this  "second cycle" of equipment are
generally  similar to initial investment costs, except that the initial one-time expenditures are not
incurred.  Consequently, most of the  information to be recorded in this pan is  taken from earlier
parts of the Worksheet

     Lines D18 through D20 (capital investment, depreciation tax savings, and annual  costs)
are drawn directly from Lines D01, Dll, and D17. Line D21 is  calculated by adding  Lines
D18 and  D20 and subtracting Line D19. In our example, these lines total $174,764.

     Line D22, the inflation adjusted discount rate, and  D23, life of equipment,  are drawn
from Lines D15 and C16, respectively.   The discounting  factor is taken from Appendix D-3
using the data provided in Lines D22 and D23.  The  resulting discounting  factor is recorded
in Line D24.  In this example, the inflation adjusted  discount rate of 14.5 and the equipment life
of 15 years yield a discounting  factor of 0.151. The discounting factor recorded in Line D24
is then multiplied by the value recorded in D21  to obtain the cost  of all subsequent
equipment replacements as of the base-year.  This value appears in Line D25.  In the
example of XYZ Manufacturers, Inc., the  cost of all subsequent equipment replacements is
$26,389.


2.4.5  Total Cost of On-Time  Compliance

     To complete Step D, the  total cost of on-time compliance as of the base-year is calculated
by adding together all discounted compliance costs not incurred and subtracting tax savings  not
realized.   This  value is  obtained by subtracting the  value of tax savings (Line Dll) from the
total investment costs (Line DOS), and then adding the after-tax annual costs (Line D17),
and  all subsequent equipment replacement costs  (Line D25). The result is  presented in Line
D26.   For XYZ Manufacturers, the total cost of on-time compliance as of the base-year is
$218,922.
2.5  STEP E - CALCULATE COST OF DELAYED COMPLIANCE

     Step E calculates the cost that the firm  incurs upon installing pretreatment equipment after
delaying compliance. This cost, expressed as a base-year value, is lower than the cost of on-time
compliance because, by not complying on time, the violator gains two economic benefits.  First,
during the period of noncompliance, the money required for purchasing the necessary pretreatment
equipment can be invested by the  violator to  earn a rate of return (that is, interest).  Second, the
firm avoids annual costs during the delay and these funds can also be invested by the violator to


                                            2-9

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cam a rate of return.  These financial gains are accounted for in the simple procedures explained
below.

     •  Number of months of noncompliance - This value, previously determined in Step A, is
        found on Line A05.  The value from Line A05 is entered on Line £01.  The number
        of months of noncompliance for XYZ Manufacturers, Inc. is 26 months.

     •  Inflation adjusted discount  rate -  This value was previously calculated from two
        previous values in  Step B, namely the annual average inflation rate on Line B02 and the
        discount rate  on Line BOS.  The result of that calculation appears in Line D15.  This
        value entered on Line E02.  The inflation adjusted discount rate for XYZ Manufacturers,
        Inc.  is  14.5 percent.

     •  Discount factor (for delayed compliance) - The discount factor for delayed
        compliance, entered on Line £03, is obtained from Appendix D-4 using the values
        in Lines £01 and  £02. For XYZ Manufacturers, Inc.,  the discount factor for the 26-
        month  delay (August 1987 to October 1989) at a  14.5 percent discount rate  is 0.746.

     •  Cost of delayed compliance as of the base-year • The cost of delayed compliance as
        of the  base-year is determined by multiplying the total  cost of on-time compliance
        (Line D26) by  the discount factor on  Line £03.  This cost of delayed compliance,
        expressed as a base-year value, is entered on Line £04.  For XYZ  Manufacturers,
        Inc., the cost of delayed compliance is $163,316.
2.6  STEP F - CALCULATE NET ECONOMIC BENEFIT

     Step F of the procedure is organized into two parts.  The first part (Lines F01 to F03)
calculates the economic benefit of noncompliance,  as of the base-year, to the violator.  The
second part (Lines F04 to  F07) calculates the net economic benefit as of the penalty payment
date.  This value  is larger  than the economic benefit as  of the base-year because the violator has
had an opportunity to invest the benefit since the base-year.

     As  defined earlier, the economic benefit of noncompliance is the difference between the
costs of on-time and delayed compliance.  To determine the economic benefit to the violating
firm from its noncompliance, the POTW uses the following three values:

     •  Cost of on-time compliance - This  value, calculated previously in Step D,  is found on
        Line D26.  It is entered on Line F01.  For XYZ Manufacturers, Inc., the base-year cost
        of on-time compliance is $218,922.

     •  Cost of delayed compliance - This  value was also calculated previously, in Step E (Line
        E04).  The number from Line E04 is entered on Line F02.  The base-year cost of
        delayed compliance to our example violator, XYZ, Manufacturers, Inc., is  $163,316.

     •  Economic benefit as of noncompliance date - This value is obtained by subtracting
        Line F02 from Line F01.  The difference is entered on Line F03. In the example,
        this value is $55,606.
                                           2-10

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     Since the civil penalty amount will probably not be paid in the same year that
noncompliance began, the economic benefit expressed as a base-year value on Line EOS must be
adjusted to account for inflation and the return the violator earned  on the economic benefit.  This
adjustment allows the economic benefit amount to be expressed in the appropriate year dollars
(that is, if the penalty is to be paid in 1990, the economic benefit  must be adjusted to  1990
dollars).  Lines  F04 through F07 perform this calculation.


     •  Number of months of noncompliance before payment - This value was calculated in
        Line A06 of Step A.  The value  is entered on Line F04.  For our hypothetical case,
        XYZ Manufacturers,  Inc. will be in noncompliance 29 months before the firm pays its
        penalty.

     •  Discount rate • This value was calculated in Step B, Line BOS. The value  is entered
        on Line F05. In our example, the discount rate  used is 16.5 percent.

     •  Adjustment factor - The adjustment factor, entered on  Line  F06,  is obtained from
        Appendix D-4 using the values in Lines F04 and F05.   In the example, this value is
        0.691.

     •  Economic benefit amount at payment date  - The penalty amount  entered  on Line F07
        is obtained  by dividing the economic benefit (expressed as a base-year value) on
        Line F03 by the adjustment factor on Line F06.  For XYZ Manufacturers,  Inc., the
        economic benefit value from the date of noncompliance in 1987 (the base-year) must be
        adjusted to  its value on the date that the penalty  is expected to be paid in 1990.
        Accounting for inflation and the return the violator has earned,  the economic benefit of
        $55,606 as  of 1987  becomes $80,472 in 1990.  This figure represents that portion of the
        civil penalty that the Anytown POTW will assess against  XYZ Manufacturers, Inc. to
        remove the economic benefit that  this firm would have realized during its period of
        noncompliance from August 1987  to  October 1989.
                                           2-11

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Figure 2-1
	 	 - ' 	 :
Economic Benefit Worksheet

;-,; A. General Information
'':% ' • .;'" "
.- 1. Case name: XV2 M/trUO

FACnrK.C£S. /AJC. 1!|A01[
'* ' r
'" 2. Date when noncompliance began (base-year) ft / /^ A02
f ' > ••
3. Date of compliance
month/year
tG 1 tt |A03|
•/' , month/year
4. Penalty payment date
/ / *? O | A04 |
* < < ' ' - - - month/year
5. Number of months of noncompliance (A03 - A02) Z. 4> I A05 |
'
6. Number of months of noncompliance before payment (A04 - A02) Z. f I A06 |
•f
B. Financial Factors

1 . Marginal tax rate

38.4% | B01 |

2. Annual inflation rate
Enter inflation rates for last five years (see App. C-1)
19 t
19
19 8
^r o. y %
rt -z. / %
^ /.? %
19 vy 5", i* %
10 L» ^ "V V o/
'•* A I «3» 0 '°
Average annual inflation (sum of above
values divided by 5)

3. Discount rate
j Enter average yields for last five years from App. C-2
19_J
19 ^
19 \
• . 19 i
19 I
?5" IO.X %
'4 f.JT %
7 } . t %
4* ^ . o %
1 ?. 
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 C.  Engineering Cost Estimates
1  1. Initial capital investment in pretreatment equipment
    a. Estimated costs
    b. Year-dollars for cost
    c. Adjustment period (A02 - C02)
d. Inflation adjustment factor (App. D-1 using B02 and COS)
e. Initial capital investment in base-year dollars (C01 / C04)
                                                                I.OZ
j 2. One-time expenditures
- -
•
a. Estimated costs
b. Year-dollars for cost
c. Adjustment period (A02 - C07)
d. Inflation adjustment factor (App. D-1
e. One-time expenditures in base-year
using B02 and COS)
dollars (C06 / C09)
                                                            $   50006
| 3. Annual costs

a. Estimated costs
b. Year-dollars for cost (calendar year)
c. Adjustment period (A02 - C12)
d. Inflation adjustment factor (App. D-1 using B02
andClS)
e. Annual costs in base-year dollars (C11 / C14)
                                                            $   ££". ooO
                                                                    i
| 4. Useful life of pretreatment equipment (number of years)
                                                                   is-
                                                                           C01
                                                                           C02
                                                                           COS
                                                                           C04
                                                                           COS
                                                                      C06
                                                                      C07
                                                                      COS
                                                                      C09
                                                                      C10
                                                                      C11
                                                                     "cm
                                                                      C13
                                                                      C14
                                                                      C15
                                                                      .016
 D. Cost of On-Time Compliance
 1. Initial investment
    a. Initial capital investment (COS)
    b. One-time expenditures (C10)
    c. Tax savings (D02 x 801)
    d. After-tax one-time expenditures (D02 - DOS)
    e. Base-year value of total investment (D01 + D04)
                                                       $
                                                       $  tt'l*
\ 2. Depreciation tax savings


a. Depreciation period (years; standard value - 7 years)
b. Annual depreciation (D01 / D06)
c. Annual tax savings (D07 x B01)
d. Marginal tax rate (BOS)
e. Discounting factor (App. D-2 using D06 and
f. Base-year value of depreciation tax savings
D09)
(D08xD10)
                                                           $
                                                       $  //.'a??
                                                       $  n
                                                           $   IZ.4A
                                                           '%M>L
                                                            I I/ f^O/
                                                                           D01
                                                                           D02
                                                                           DOS
                                                                           D04
                                                                           DOS
                                                                          DOS
                                                                          D07
                                                                          DOS
                                                                          D09
                                                                          D10
                                                                          D11
| 3. Annual costs

a. Before-tax annual costs (C15)
b. After-tax annual costs (D12 x [1 - B01])
c. Useful life of pretreatment equipment (C16)
d. Inflation adjusted discount rate (BOS - B02)
e. Discounting factor (App. D-2 using D14 and 015)
f. After-tax base-year value of annual costs (013 x D1 6)
                                                                *"7f
                                                               /4k 5-%

                                                           $
                                                                      D12
                                                                      D13
                                                                      014
                                                                      D15
                                                                      D16
                                                                      D17

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4. Base-year value of pretreatment replacement costs

a. Initial capital investment (001)
b. Value of depreciation tax savings (D11)
c. Aftertax value of annual costs (01 7)
d. Value of second cycle costs (018 - 019 + 020)
e. Inflation adjusted discount rate (015)
f. Useful life of pretreatment equipment (C1 6)
g. Discounting factor (App. D-3 using 022 and 023)
h. Base-year value of all pretreatment replacement costs (021
XD241
                                                    $  /Q?.Jl>
                                                    $
 5. Total cost of on-time compliance (DOS - 011 +017+025)
                                                    $  so '
018
019
020
                                                                 021
                                                                 022
                                                                 023
                                                                 024
                                                                 025
E. Cost of Delayed Compliance
] 1. Discount factor (for delayed compliance)

a.
b.
c.
Number of months of noncompliance (A05)
Inflation adjusted discount rate (B15)
Discount factor (App. D-4 using E01 and E02)
2. Cost of delayed compliance as of base-year (026 x E03)
F. Net Economic Benefit
1 . Economic benefit as of base-year

a. Cost of on-time compliance in base-year values (026)
b. Cost of delayed compliance in base-year values (E04)
c. Net economic benefit as of base-year (F01 - F02)
                                                    $ 2/r.izz.
                                                    $
2. Economic benefit as of penalty payment date

a. Number of months of noncompliance before payment (A06)
b. Discount rate (805)
c. Adjustment factor (App. D-4 using F04 and F05)
d. Economic benefit at penalty payment date (F03 / F06)
                                                         ZT
                                                         . LI I

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     3.  OTHER CONSIDERATIONS IN DEVELOPING A SETTLEMENT PENALTY
       The preceding chapter explained how to calculate economic benefit to determine the
minimum penalty that must be recovered to offset the costs saved by the violator for
noncompliance.  The POTW  should consider the following four additional factors to determine the
total penalty that should be collected in any settlement:


       •   Gravity of the violation
       •   Adjustment factors (including compliance history  and ability to pay)
       •   Amounts previously paid
       •   Benefit from competitive advantage.

       These factors are discretionary and usually determined on a case-by-case  basis.  While
each of these factors is discussed below, specific information is not provided in this manual on
how they should be included in the penalty  calculation.  For futher guidance on  this topic refer to
EPA's Pretreatment Compliance Monitoring  and Enforcement Guidance (September 1987) and its
Guidance for Developing Control Authority  Enforcement Response  Plans (September 1989).
3.1  GRAVITY OF THE VIOLATION

       Consideration of the gravity of a violation is  important when determining the penalty
amount.  Removing the economic benefit of noncompliance only places the violating industry in
the position it would have been had it complied on time.  Both deterrence and fundamental
fairness require that the penalty include an additional amount to ensure that noncompliance is
more costly than compliance.  In order to achieve these objectives  of deterrence and fairness, the
EPA uses the  following five factors in determining the gravity or seriousness  of violations:   1) the
significance of the violation; 2) potential or actual health and environmental harm caused by  the
violation;  3) the number of violations; 4) the  duration of noncompliance; and  5) the significance
of non-effluent violations.   Each of these is discussed below. The  POTW should consider using
similar criteria in developing an appropriate gravity component of the settlement penalty.  For
more information on developing the gravity component of a  settlement penalty refer to U.S.
EPA's  Clean Water Act (Penalty) Policy for civil settlement  negotiations.


3.1.1 Significance of  the Violation

       EPA recently defined "significant noncompliance" in  its revisions to the General
Pretreatment Regulations (see 55 Federal Register 30082) as  violations which  meet one or more of
the following criteria:


       •  Violations of wastewater discharge limit

          -  Chronic violations are those in  which sixty-six percent or more  of all of the
             measurements (of monitored parameters) taken  during a six-month period exceed (by


                                             3-1

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             any magnitude) the daily maximum limit or the average  limit for the same pollutant
             parameter.

          -  Technical Review Criteria (TRC) violations are those in  which thirty-three percent
             or more of all the measurements for each pollutant parameter taken  during a six-
             month period equal or exceed the product of the daily average maximum limit or
             the average limit times the applicable TRC (TRC = 1.4 for BOD, TSS, fats, oil,
             and grease, and 1.2 for all other pollutants except pH).

          -  Any other violation of a pretreatment effluent limit (daily maximum or longer-term
             average) that the POTW determines has caused, alone or in combination with other
             discharges, interference (e.g., slug loads) or pass-through (including endangering the
             health of POTW personnel or the general public).

          -  Any discharge of a pollutant that has caused imminent endangerment to human
             health, welfare or to the environment or has resulted in the POTW's exercise of its
             emergency authority to halt or prevent such a discharge.

       •  Violations  of compliance schedule, milestones contained in a local control mechanism or
          enforcement order for starting construction, completing construction, and attaining final
          compliance by 90 days or more after the scheduled  date.

       •  Failure to provide reports for compliance schedules, self-monitoring data, or categorical
          standards [Baseline Monitoring Reports (BMRs), 90-day compliance reports, and
          periodic  reports] within 30 days of the due date.

       •  Failure to accurately report noncompliance

       •  Any other violation  or group of violations that the  POTW determines will adversely
          affect the operation or implementation of the local  pretreatment program.

       In addition to assessing appropriate penalties commensurate with  the factors listed above
the POTW should consider assessing  larger penalties in cases  of repeat violations, including all
violations of permit effluent limitations, monitoring  and reporting requirements, and other standard
and special discharge conditions.  This consideration provides flexibility  in assessing penalties for
multiple violations.


3.1.2  Potential or Actual Health and Environmental Harm

       The POTW should consider assessing, higher penalties for violations resulting in actual or
potential harm to the environment.  Such potential environmental harm occurs whenever an
industrial  user discharges a pollutant into the sewer system that:

       •   Passes through the POTW inadequately treated and causes a violation of the POTW's
           National Pollutant Discharge Elimination System (NPDES)  permit (including water
           quality standards).

       •   Has a potentially toxic effect on the receiving waters  (for example, a fish
           kill).


                                             3-2

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       Some violations may have negative impacts on the POTW itself.  For example, such
violations may result in significant increases  in treatment costs, interfere or harm POTW
personnel, equipment, processes, or operations, or cause  sludge contamination, resulting in
increased disposal costs.  When a user's noncompliance  harms the treatment plant, the POTW
should assess a larger penalty.


3.1.3  Number of Violations

       It is important to account for each violation in assessing the significance of industrial user
noncompliance. Violations of average effluent limitations should be considered a violation for
each day of the averaging period.  Therefore, a monthly average violation should be counted as
30 days  of violation, a  weekly average violation as seven days of violation and a four day
average (as used  in  Section 413 for Electroplating) should be counted as  four violations.
Violations of different parameters at the same outfall are counted separately, and violations at
different outfalls or  indirect discharge  locations are counted separately.  In short, the gravity
penalty should  increase  as the number of violations increases.


3.1.4  Duration of  Noncompliance

       The POTW should consider increasing penalty amounts for continuing, long-term
violations.  Generally, a "long-term" violation is  one  that continues for three or more consecutive
months.  In turn, penalties should be higher  for violations that have continued for three years than
for violations that have  only occurred  for six months.


3.1.5  Significance of Non-effluent Limit Violations

       This factor is used to address the most significant non-effluent violations in each  month.
Violations included  in this category include failure to report, late reporting, schedule violations,
failure to implement an approved pretreatment program,  laboratory analysis deficiencies,
unauthorized  discharges, operation and maintenance deficiencies and sludge handling violations.
3.2  ADJUSTMENT FACTORS

       Two "adjustment" factors should be considered by the POTW as it determines the
appropriate settlement penalty for a violating firm.  These factors  are:

       •  Any history of recalcitrance by the firm
       •  The  firm's ability to pay.


3.2.1   History of Recalcitrance by  the Firm

       The POTW should consider increasing the penalty amount when the violating firm appears
to be acting in "bad faith" (that is, by not cooperating with the POTW in effecting a timely


                                             3-3

-------
correction of the violation); when the firm experiences unjustified delays in preventing, correcting,
or mitigating violations; when the firm has already violated prior administrative orders, compliance
agreements or consent decrees; or when the firm fails to provide timely and full information.
This recalcitrance factor also may be increased during negotiations if the firm continues to resist
efforts to settle.
3.2.2  Firm's Ability to Pay

       When a  firm demonstrates that it is unable to pay a settlement penalty, the POTW should
independently evaluate the firm's ability to pay.  Although the POTW typically should seek to
settle  for as high an amount as the firm can afford,  when it is determined that the firm cannot
afford to pay the penalty or that payment of all or part of the penalty will preclude the violator
from  achieving compliance, the POTW should consider other  options.  For example, the POTW
may consider an installment payment plan  with the firm paying interest.   Only as a last recourse
should the  POTW consider reducing the penalty amount.  If the firm's behavior has been
exceptionally culpable, recalcitrant, or threatening to human health and the environment, inability
to pay should be disregarded.
3.4  AMOUNTS PREVIOUSLY PAID

       EPA can take an enforcement action against firms violating the Clean Water Act,
including Federal pretreatment standards and regulations.  Citizens or citizen groups can also bring
civil suits against individual firms for violating environmental regulations.  If the violating firm
has been sued by EPA, a State regulatory agency, or citizens, and penalties were imposed upon it
from these civil actions, the POTW may consider reducing the penalty  by  an amount equal to  that
which the firm already  paid for the same violation.
                                             3-4

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                                        GLOSSARY
       TERM

Annual Inflation
                   DEFINITION

Annual rate at which the costs for goods and services increase over
time.
Base-Year Dollars
Costs converted to the year of noncompliance to remove the effect
of inflation on  the purchasing power of money.  See definition of
"year-dollars" below.
Base-Year Value
Costs converted to the year of noncompliance to take into account
the effect of inflation and return that the violator is expected to
earn on its investments.
Cash Flows
Money flowing into  and out of a firm over a period of years,
including expenditures for pretreatment equipment, annual
depreciation tax savings, and annual costs.
Capital Investment
Cost to purchase items, such as  machinery and other equipment,
that have a useful life  of several years (3 to 40 years).
Construction, engineering, design, and delivery costs are  also
included in capital investment costs. Capital investments are
"depreciated"  over a period of time to recover their costs.  The
cost of land is not included in this  category because land is not
depreciable.
Depreciation
Gradual decrease in the value of a capital investment through wear,
deterioration, or obsolescence.  The tax code permits  firms to
deduct depreciation from taxable income.  The code establishes
rigid formulae which spread the depreciation over a period of years
and prescribe the amount to be deducted each year.  The
depreciation period for tax  purposes is usually far less than the
capital investment's "useful life" (see  below).
Discount Rate
Rate used to convert subsequent (or "future" in economic
vernacular) costs to earlier, constant year dollars.
Marginal Tax  Rate
Maximum tax rate that an industry must pay on its taxable income.
Since the cost of pretreatment equipment is  a tax deductible
expense and therefore reduces a firm's taxable income, the effect of
taxes is to reduce the firm's net out-of-pocket costs for pollution
control.

-------
Present Value


Risk Premium Rate
Useful Life


Year-dollars
Method for expressing cost and benefits occurring  at different
periods in time in equivalently valued dollars.

Incremental rate of return beyond riskless investments, such as  U.S.
government securities, expected by the investor to  compensate for
the additional risk associated with the investment.  The investor
expects the riskier investment to yield a higher rate of return.

The number of years a piece of equipment or structure is expected
to operate and be functional before  it must be replaced.

Year in which a cost  is estimated or expressed.  For example, the
cost of a piece of equipment to be installed in 1990 may have  been
estimated using a manufacturer's price list from 1987.  This cost
estimate is said to be expressed in 1987  dollars.  Because inflation
reduces the purchasing power of money over time, this 1987 cost
cannot be directly compared or combined with another cost that is
expressed in 1988 (or any other year) dollars.  To compare or
combine the costs, the costs must be convened to  common  year or
base-year dollars.

-------
               APPENDIX A



METHOD FOR CALCULATING ECONOMIC BENEFIT

-------
percent) is $100.  The difference between the present value of costs for on-time compliance and
the present value of costs for delayed compliance represents the industry's economic benefit from
delaying the purchase of the pretreatment equipment.

       The following sections further explain key factors used to simplify the calculation of
present values and describe the resulting formulas.
3.  SELECTION OF DISCOUNT RATE

     An appropriate estimate for the discount rate is the rate of return that an investor normally
expects from an investment  The expected rate of return is defined here as the expected return on
a risk-free investment plus a risk premium factor to compensate for the degree of risk or
uncertainty associated with an investment in a typical  business operation.

     A generally accepted risk-free investment is long-term U.S. Government securities,  such as
the 30-year Treasury bond.  An investment in U.S. Government securities is considered  risk-free
because the return on the investment (the interest rate) is known at the time of investment.  There
is little chance that the investor will lose his investment, since Government securities are backed
by full faith and credit from the U.S. Government.  Appendix C-2 presents the annual rates of
return on 30-year Treasury bonds for 1980 through 1989.

     Investors demand a higher rate of return from an investment in private business relative to a
risk-free investment  This extra expected return, or risk premium factor, is needed to compensate
the investor for the uncertainty of the investment's profitability.  The P-BEN calculation conforms
to that of the revised BEN method  in assuming a risk-premium of 7.5% for an average  or typical
business.2 Therefore, assuming the  return on a 30-year Treasury bond is 9 percent, an individual
investing in  a company of average risk  would expect a return of 16.5% (9% risk-free plus 7.5%
risk-premium).
4.  CONSTANT ANNUAL CASH FLOWS ASSUMPTION

     The general formula for the present value of annual costs is:

                     t      A.
             PV  m  Z  	                                 (1)
                     n=l
where:    PV  =   total present value of all annual costs
          A,  =   annual costs in year n
          r    =   annual discount rate
          t    =   total number of years
    •Stock*. Bonds. Bills and Inflation: 1990 Yearbook. Ibbotson Associates, (Chicago, 1990), p. 121.

                                            A-2

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     If the annual costs (AJ remain constant, Equation 1 can be transformed to:
              PV =  A x 	                                (2)
This occurs for constant costs such as depreciation tax savings which are assumed to be constant
over a seven-year period.

     A similar approach is used to calculate the present value of annual costs.  First, the annual
costs are adjusted to reflect the tax effects.  Then, assuming annual costs grow at a  constant
inflation rate i (calculated by the average of inflation over the previous five years), the  after-tax
annual costs can  be expressed by the following formula:


                 OM. =    OM x (l+i)B                             (3)


where:            OM,,= annual after-tax costs in year n
                  OM = annual after-tax costs as of the base-year
                   i  = average annual inflation rate.
     The total present value of all annual costs is thus equal to:
                          t   OM x (l+i)n
                 PVOM  =  I.  	                          (4)
                          n=l
                                 (1+r)'
where:             t   = useful life of pretreatment equipment
Equation 4 can be simplified as follows:
                          t      OM
                PVOM  =  *  	                            (5)
                         n=l
                                             A-3

-------
                                    i-0+ry
or                PVOM =   OM x  	                           (6)
where:            r'     =   r - i                                       (7)3


The rate " r' " is called the  inflation adjusted discount rate in this manual and is used to calculate
the values of costs expressed in constant dollars (i.e., not inflated to reflect the change  in
purchasing power of the dollar over time).  It is used in steps D and E to calculate the present
values of annual costs that increase annually due to inflation.
5.  DEPRECIATION ASSUMPTIONS

      To simplify the pretreatment economic benefit calculations,  this manual uses a seven-year
straight line depreciation method with constant annual depreciation rather than a seven-year
declining balance method.  This is applied to all calculations, regardless of when the pollution
control  equipment is installed.4
6.  PRESENT VALUE OF FUTURE REPLACEMENT COSTS

      As described in Chapter 2 of this  guidance manual, the economic benefit of noncompliance
includes the present value of all replacement costs following initial investments.  These are called
future replacement costs.  To determine this value, the present value  of first replacement  costs
must be calculated.  This is done by using the same formulas used to calculate the present value
of the initial investment, assuming current applicable tax law and  no additional one-time
expenditures.  All  future replacement costs,  expressed in base-year dollars,  are  similar to  the first
replacement costs,  and their present values are expressed by the following formula:
    1  (r' = r - i) is derived as follows:

                               1-t-r
                  1+r'   =    	

                               1-t-i

Solving this for r':

                  r1  •   r - i - (i x r')

Since i and r' are small numbers, (i x r') is a very small number and the equation can be simplified to:  r'= r - L

    '  For capital investments made before 1987, annual depreciation is based on a five-year straight line depreciation method
to approximate the tax law provisions applicable at that time.  For pollution control investments made after 1987, the revised
tax law specifies a double-declining balance depreciation method or straight-line calculation over a seven-year depreciation life.

                                                A-4

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                                                                  (8)
                          (1+r')'
                              •\aL
where:    PV,^  - present value of nth replacement costs
          PVjH,  = present value of first replacement costs
          L      = expected life of pretreatment equipment
          r*      = inflation adjusted discount rate.


The present value of all future replacement costs  (PV,,,) is calculated by the following formula:
                                                   + ...            (9)
                                 (l-fr')L
                                      1        1           1
or          PVaa,    =  PVREP, x 11  +	+	  +...+	)  (10)
                                      1+R     (1+R)2     (1+R)B
where:           1+R = (l+r')L                                   (11)
Equadon 10 can be transformed to:
                                     1        1              1          1
                                X  	+	+ ... +	+	 ]           (12)
                                            o+R)2
and            PV^p-   	^PV^xl-	 J            (13)
                       1+R           V     (1+R)"*1
                                            A-5

-------
As n increases, l/O+R)"*1 will approach zero  and Equation 15 can be approximated to:
r
                        1-	hPV,^                        (14)
                            1+R
or           PV.a, =  PV^p, x   	                    (15)
                                  1  - (1/0+R)
or           PV^  =  PV^p, x  _                    (16)
    The value  PV^ is the present value at the beginning of the first replacement cost period (or
the end of the initial investment).  To convert this value to the present value as of the beginning
of the  initial investment period (BPY,^), the  following calculation is made:
                                                                  (17)
Appendix D-3 lists the calculated values for the above formula for various expected lives of
pretreatment equipment at selected discount rates.
                                             A-6

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         APPENDIX B



ECONOMIC BENEFIT WORKSHEET

-------
Figure 2-1
,.
Economic Benefit Worksheet

A. General information

1. Case name:

A01

2. Date when noncompliance began (base-year) || / li| A02 1
month/year
3. Date of compliance
/ A03
month/year
4. Penalty payment date
/ A04
month/year
5. Number of months of noncompliance (A03 - A02) | 1 A05

6. Number of months of noncompliance before payment (A04 - A02) a | A06 |

B. Financial Factors

1 . Marginal tax rate

38.4% B01

2. Annual inflation rate
jEnter inflation rates for last five years (see App. C-1)

19 %
19 %
19 %
19 %
19 %
j Average annual inflation (sum of above values divided by 5)
-

3. Discount rate
JEnter average yields for last five years from App. C-2
,
19 %
19 %
19 %
19 %
19 %
a. Annual average yield (sum of above values divided by 5)
b. Risk premium rate (standard value = 7.5%)
:. c. Discount rate (B03 + B04)

% B02

% 803
7.5% 804
% 805



KEY:
"-"» minus (e.g. "A03-
i
A02" means "A03 minus A02"); V«plus \
s- - "' T - divided by (e.g. "C01 / C04" means "C01 divided by C04"); "x" - multiplied by
;

-------
' ' ,, , , .. V. "• \
i C. Engineering Cost Estimates

j 1. Initial capital investment in pretreatment equipment
* f f*s '
a. Estimated costs
b. Year-dollars for cost
c. Adjustment period (A02 - C02)
d. Inflation adjustment factor (App. D-1 using B02 and C03)
e. Initial capital investment in base-year dollars (C01 / C04)
,, - ,,-,,,< ' -.-'
2. One-time expenditures
St f "*'
a. Estimated costs
b. Year-dollars for cost
c. Adjustment period (A02 - C07J
d. Inflation adjustment factor (App. D-1 using B02 and COS)
e. One-time expenditures in base-year dollars (COS / COS)
,
3. Annual costs

a. Estimated costs
b. Year-dollars for cost (calendar year)
c. Adjustment period (A02 - C12)
d. Inflation adjustment factor (App. D-1 using B02 and C13)
e. Annual costs in base-year dollars (C1 1 / C14)

i 4. Useful life of pretreatment equipment (number of years)
• <•'" •• ,
D. Cost of On-Time Compliance

1 . Initial investment

a. Initial capital investment (COS)
b. One-time expenditures (C10)
c. Tax savings (D02 x 801)
d. After-tax one-time expenditures (D02 - D03)
e. Base-year value of total investment (D01 + D04)

2. Depreciation tax savings
%
a. Depreciation period (years; standard value * 7 years)
b. Annual depreciation (D01 / D06)
c. Annual tax savings (D07 x B01)
d. Marginal tax rate (BOS)
e. Discounting factor (App. D-2 using D06 and DOS)
f. Base-year value of depreciation tax savings (DOS x D1 0)
' ,»', " ',*, ,-> -, ,» ; ,
' | 3. Annual costs
:>>-
-
- ;-
a. Before-tax annual costs (C1 5)
b. After-tax annual costs (D12 x [1 - B01])
c. Useful life of pretreatment equipment (C16)
d. Inflation adjusted discount rate (BOS - B02)
e. Discounting factor (App. D-2 using D14 and D15)
f. After-tax base-year value of annual costs (D13 x D16)
'









$



$
s
$



$

$



$



$
$
$
$
$
tf

$
$
%

$
/*V>r^;^


$
$

%

$



C01
C02
C03
C04
COS

C06
C07
COS
COS
C10

C11
C12
C13
C14
C15

C16

D01
D02
DOS
D04
DOS

D06
D07
DOS
DOS
D10
D11
'/ ' ''
D12
D13
D14
D15
D16
D17

*

-------
j 4.  Base-year value of pretreatment replacement costs
     a. Initial capital investment (D01)
     b. Value of depreciation tax savings (D11)
     c. After tax value of annual costs (D17)
     d. Value of second cycle costs (D18 • D19 + D20)
     e. Inflation adjusted discount rate (015)
     f. Useful life of pretreatment equipment (C16)
     g. Discounting factor (App. D-3 using 022 and D23)
     h. Base-year value of all pretreatment replacement costs (D21 x D24J
   $
   $
D18
                   D19
                   D20
D21
                   D22
                   D23
                   D24
                   D25
|  5.  Total cost of on-time compliance (DOS - D11 +017+025)
JE.
 E.  Cost of Delayed Compliance
  1.  Discount factor (for delayed compliance)
     a. Number of months of noncompliance (A05)
     b. Inflation adjusted discount rate (B15)
     c. Discount factor (App. 0-4 using E01 and E02)
  2.  Cost of delayed compliance as of base-year  (026 x E03)
 F.  Net Economic Benefit
  1.  Economic benefit as of base-year
     a. Cost of on-time compliance in base-year values (026)
     b. Cost of delayed compliance in base-year values (E04)
     c. Net economic benefit as of base-year (F01 - F02)
  2.  Economic benefit as of penalty payment date
     a. Number of months of noncompliance before payment (A06)
     b. Discount rate (BOS)
     c. Adjustment factor (App. D-4 using F04 and F05)
     d. Economic benefit at penalty payment date (F03 / F06)

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  APPENDIX C



SAMPLE TABLES

-------
                                  APPENDIX C-l
                  CHEMICAL ENGINEERING PLANT COST INDEX
                                  (Inflation Rate)
                 Year              Index         Percent Change
                                                    (Inflation)
                 1980              261.2
                 1981               297.0              13.7
                 1982              314.0               5.7
                 1983              316.9               0.9
                 1984              322.7               1.8
                 1985              325.3               0.8
                 1986              318.4              -2.1
                 1987              323.8               1.7
                 1988              342.5               5.8
                 1989              355.4               4.0
                 1990
                 1991
                 1992
                 1993
                 1994
                 1995
                 1996
                 1997
                 1999
                 2000
SOURCE:  Chemical Engineering. McGraw Hill, Inc., biweekly issues, 1985-1990.
                                       c-i

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                                 APPENDIX C-2
           ANNUAL AVERAGE YIELDS ON 30-YEAR TREASURY BONDS
                           (To Calculate Discount Rate)
                 Year                            Average Yield (%)
                 1981                               13.5
                 1982                               12.8
                 1983                               11.2
                 1984                               12.4
                 1985                               10.8
                 1986                                7.8
                 1987                                8.6
                 1988                                9.0
                 1989                                8.5
                 1990 (1st half)                        8.5
                 1991
                 1992
                 1993
                 1994
                 1995
                 1996
                 1997
                 1998
                 1999
                 2000
SOURCE:  Federal Reserve Bulletin. 'Table 1.35 - Interest Rates:  Money and Capital Markets,"
          1980-1990.
                                       C-2

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     APPENDIX D



PRESENT VALUE TABLES

-------
        APPENDIX D-1







INFLATION ADJUSTMENT  FACTORS





     FORMULA:   (1+RTn
No. of
Years 0.5X
1 1.00S
2 1.01
3 1.015
4 1.02 1
5 1.025 1
6 1.03
7 1.036
8 1.041
9 1.046
10 1.051
11 .056
12 .062
13 .067
14 .072
15 .078
16 1.083
17 1.088
18 1.094
19 '1.099
20 1.105
21 "\11 1
22 1.116 1
23 1.122 1
24 1.127 .
25 1.133 1

1.0X
1.01
1.02
1.03
.041
.051
.062
.072
.083
.094
.105
.116
.127
.138
.149
.161
.173
.184
.196
.208
1.22
.232
.245
.257
1.27
.282

1.5X
1.015
1.03
1.046
1.061
1.077
1.093
1.11
1.126
1.143
1.161
1.178
1.196
1.214
1.232
1.25
1.269
1.288
1.307
1.327
1.347
1.367
1.388
1:408
1.43
1.451

2. OX
1.02
1.04
1.061
1.082
1.104
1.126
1.149
1.172
1.195
1.219
1.243
1.268
1.294
1.319
1.346
1.373
1.4
1.428
1.457
1.486
1.516
1.546
1.577
1.608
1.641

2.5X
1.025
1.051
1.077
1.104
1.131
1.16
1.189
1.218
1.249
1.28
.312
.345
.379
.413
.448
1.485
V.522
1.56
1.599
1.639
1.68
1.722
1.765
1.809
1.854

3. OX 3.5X 4. OX 4.5X 5. OX 5.5X 6. OX 6.5X 7. OX 7.5X 8. OX 8.5X 9.0X 9.5X 10. (T
1.03 1.035 1.04 1.045 1.05 1.055 1.06 1.065 1.07 .075 1.08 1.085 1.09 1.095 1.1
1.061 1.071 1.082 1.092 1.103 1.113 .124 1.134 .145 .156 1.166 1.177 1.188 1.199 1.21
1.093 1.109 1.125 1.141 1.158 1.174 .191 1.208 .225 .242 1.26 1.277 1.295 1.313 1.331
1.126 1.148 1.17 1.193 1.216 1.239 .262 1.286 .311 .335 1.36 1.386 1.412 1.438 1.464
1.159 1.188 1.217 1.246 1.276 1.307 .338 1.37 .403 .436 1.469 1.504 1.539 1.574 1.611
1.194 1.229 1.265 .302 1.34 1.379 .419 1.459 .501 .543 1.587 1.631 1.677 1.724 1.772
1.23 1.272 1.316 .361 1.407 1.455 .504 1.554 .606 .659 1.714 1.77 1.828 1.888 1.949
1.267 1.317 1.369 .422 1.477 1.535 .594 1.655 .718 .783 1.851 1.921 1.993 2.067 2.144
1.305 1.363 1.423 .486 1.551 1.619 .689 1.763 .838 .917 1.999 2.084 2.172 2.263 2.358
1.344 1.411 1.48 .553 1.629 1.708 .791 1.877 .967 2.061 2.159 2.261 2.367 2.478 2.594
1.384 1.46 1.539 .623 1.71 1.802 1.898 1.999 2.105 2.216 2.332 2.453 2.58 2.714 2.853
1.426 1.511 1.601 .696 1.796 1.901 2.012 2.129 2.252 2.382 2.518 2.662 2.813 2.971 3.138
1.469 1.564 1.665 .772 1.886 2.006 2.133 2.267 2.41 2.56 2.72 2.888 3.066 3.254 3.452
1.513 1.619 1.732 .852 1.98 2.116 2.261 2.415 2.579 2.752 2.937 3.133 3.342 3.563 3.797
1.558 1.675 1.801 .935 2.079 2.232 2.397 2.572 2.759 2.959 3.172 3.4 3.642 3.901 4.177
1.605 1.734 1.873 2.022 2.183 2.355 2.54 2.739 2.952 3.181 3.426 3.689 3.97 4.272 4.595
1.653 1.795 1.948 2.113 2.292 2.485 2.693 2.917 3.159 3.419 3.7 4.002 4.328 4.678 5.054
1.702 1.857 2.026 2.208 2.407 2.621 2.854 3.107 3.38 3.676 3.996 4.342 4.717 5.122 5.56
1.754 1.923 2.107 2.308 2.527 2.766 3.026 3.309 3.617 3.951 4.316 4.712 5.142 5.609 6.116
1.806 1.99 2.191 2.412 2.653 2.918 3.207 3.524 3.87 4.248 4.661 5.112 5.604 6.142 6.727
1.86 2.059 2.279 2.52 2.786 3.078 3.4 3.753 4.141 4.566 5.034 5.547 6.109 6.725 7.4
1.916 2.132 2.37 2.634 2.925 3.248 3.604 3.997 4.43 4.909 5.437 6.018 6.659 7.364 8.14
1.974 2.206 2.465 2.752 3.072 3.426 3.82 4.256 4.741 5.277 5.871 6.53 7.258 8.064 8.954
2.033 2.283 2.563 2.876 3.225 3.615 4.049 4.533 5.072 5.673 6.341 7.085 7.911 8.83 9.85
2.094 2.363 2.666 3.005 3.386 3.813 4.292 4.828 5.427 6.098 6.848 7.687 8.623 9.668 10.835

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                                                                                APPENDIX D-1   (cont.)
No. of
Years
1
2
3
4
5
6
7
B
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

10. OX
1.1
1.21
1.331
1.464
1.611
1.772
1.949
2.144
2.358
2.594
2.853
3.138
3.452
3.797
4.177
4.595
5.054
5.56
6.116
6.727
7.4
8.14
8.954
9.85
10.835

10. 5X
1.105
1.221
1.349
1.491
1.647
1.82
2.012
2.223
2.456
2.714
2.999
3.314
3.662
4.046
4.471
4.941
5.46
6.033
6.666
7.366
8.14
8.994
9.939
10.982
12.135

11. OX
1.11
1.232
1.368
1.518
1.685
1.87
2.076
2.305
2.558
2.839
3.152
3.498
3.883
4.31
4.785
5.311
5.895
6.544
7.263
8.062
8.949
9.934
11.026
12.239
13.585

11. 5X
.115
.243
.386
.546
.723
1.922
2.143
2.389
2.664
2.97
3.311
3.692
4.117
4.59
5.118
5.707
6.363
7.095
7.911
8.821
9.835
10.966
12.227
13.633
15.201

12. OX
1.12
1.254
1.405
1.574
1.762
1.974
2.211
2.476
2.773
3.106
3.479
3.896
4.363
4.887
5.474
6.13
6.866
7.69
8.613
9.646
10.804
12.1
13.552
15.179
17

12. 5X
1.125
1.266
1.424
1.602
1.802
2.027
2.281
2.566
2.887
3.247
3.653
4.11
4.624
5.202
5.852
6.583
7.406
8.332
9.373
10.545
11.863
13.346
15.014
16.891
19.003

13. OX
1.13
1.277
1.443
1.63
1.842
2.082
2.353
2.658
3.004
3.395
3.836
4.335
4.898
5.535
6.254
7.067
7.986
9.024
10.197
11.523
13.021
14.714
16.627
18.788
21.231

13. 5X
1.135
1.288
1.462
1.66
1.884
2.138
2.426
2.754
3.126
3.548
4.027
4.57
5.187
5.888
6.682
7.585
8.609
9.771
11.09
12.587
14.286
16.215
18.404
20.888
23.708

14. OX
1.14
1.3
1.482
1.689
1.925
2.195
2.502
2.853
3.252
3.707
4.226
4.818
5.492
6.261
7.138
8.137
9.276
10.575
12.056
13.743
15.668
17.861
20.362
23.212
26.462

14. 5X
1.145
1.311
1.501
1.719
1.968
2.253
2.58
2.954
3.383
3.873
4.435
5.078
5.814
6.657
7.622
8.727
9.993
11.442
13.101
15.001
17.176
19.666
22.518
25.783
29.521

15. OX
1.15
1.323
1.521
1.749
2.011
2.313
2.66
3.059
3.518
4.046
4.652
5.35
6.153
7.076
8.137
9.358
10.761
12.375
14.232
16.367
18.822
21.645
24.891
28.625
32.919

15. 5X
1.155
1.334
1.541
1.78
2.055
2.374
2.742
3.167
3.658
4.225
4.88
5.636
6.51
7.519
8.684
10.03
11.585
13.381
15.455
17.85
20.617
23.812
27.503
31.766
36.69

16. OX
1.16
1.346
1.561
1.811
2.1
2.436
2.826
3.278
3.803
4.411
5.117
5.936
6.886
7.988
9.266
10.748
12.468
14.463
16.777
19.461
22.574
26.186
30.376
35.236
40.874

16. 5X
1.165
1.357
1.581
1.842
2.146
2.5
2.913
3.393
3.953
4.605
5.365
6.25
7.282
8.483
9.883
11.514
13.413
15.627
18.205
21.209
24.708
28.785
33.535
39.068
45.514

17. OX
1.17
1.369
1.602
1.874
2.192
2.565
3.001
3.511
4.108
4.807
5.624
6.58
7.699
9.007
10.539
12.33
14.426
16.879
19.748
23.106
27.034
31 .629
37.006
43.297
50.658

17.5X
1.175
1.381
1.622
1.906
2.24
2.632
3.092
3.633
4.269
5.016
5.894
6.926
8.138
9.562
11.235
13.201
15.511
18.226
21.415
25.163
29.566
34.74
40.82
47.963
56.357

18. OX
1.18
1.392
1.643
1.939
2.288
2.7
3.185
3.759
4.435
5.234
6.176
7.288
8.599
10.147
11.974
14.129
16.672
19.673
23.214
27.393
32.324
38.142
45.008
53.109
62.669

18.5X
1.185
1.404
1.664
1.972
2.337
2.769
3.281
3.888
4.607
5.46
6.47
7.667
9.085
10.766
12.758
15.118
17.915
21.229
25.156
29.81
35.325
41.86
49.605
58.781
69.656

19. OX
1.19
1.416
1.685
2.005
2.386
2.84
3.379
4.021
4.785
5.695
6.777
8.064
9.596
11.42
13.59
16.172
19.244
22.901
27.252
32.429
38.591
45.923
54.649
65.032
77.388

19.5X
1.195
1.428
1.706
2.039
2.437
2.912
3.48
4.159
4.969
5.939
7.097
8.48
10.134
12.11
14.472
17.294
20.666
24.696
29.511
35.266
42.143
50.361
60.181
71.917
85.94

20.01
1.2
1.44
1.728
2.074
2.488
2.986
3.583
4.3
5.16
6.192
7.43
8.916
10.699
12.839
15.407
18.488
22.186
26.623
31 .948
38.338
46.005
55.206
66.247
79.497
95.39*
NOTE: •• " " = raised to the power of...
          R = percentage expressed as decimal

-------
                                                                               APPENDIX 02
                                                                 DEPRECIATION TAX SAVINGS DISOUNTING FACTOR
                                                           (Base-year value of $1 received per year over n years)

                                                                         FORMULA:  1-{1/(1+R)*n)/R
No. Of
Years
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

10. OX
0.909
1.736
2.487
3.17
3.791
4.355
4.868
5.335
5.759
6.145
6.495
6.814
7.103
7.367
7.606
7.824
8.022
8.201
8.365
8.514
8.649
8.772
8.883
8.985
9.077

10. 5X
0.905
1.724
2.465
3.136
3.743
4.292
4.789
5.239
5.646
6.015
6.348
6.65
6.923
7.17
7.394
7.596
7.779
7.945
8.095
8.231
8.354
8.465
8.566
8.657
8.739

11. OX
0.901
1.713
2.444
3.102
3.696
4.231
4.712
5.146
5.537
5.889
6.207
6.402
6.75
6.982
7.191
7.379
7.549
7.702
7.839
7.963
8.075
8.176
8.266
8.348
8.422

11. 5X
0.897
1.701
2.423
3.07
3.65
4.17
4.637
5.056
5.431
5.768
6.07
6.341
6.583
6.801
6.997
7.172
7.329
7.47
7.596
7.71
7.811
7.903
7.984
8.058
8.124

12. OX
0.893
1.69
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.65
5.938
6.194
6.424
6.628
6.811
6.974
7.12
7.25
7.366
7.469
7.562
7.645
7.718
7.784
7.843

12. 5X
0.889
1.679
2.381
3.006
3.561
4.054
4.492
4.882
5.228
5.536
5.81
6.053
6.27
6.462
6.633
6.785
6.92
7.04
7.147
7.241
7.326
7.401
7.467
7.526
7.579

13. OX
0.885
1.668
2.361
2.974
3.517
3.998
4.423
4.799
5.132
5.426
5.687
5.918
6.122
6.302
6.462
6.604
6.729
6.84
6.938
7.025
7.102
7.17
7.23
7.283
7.33

13. 5X
0.881
1.657
2.341
2.944
3.475
3.943
4.355
4.718
5.038
5.32
5.568
5.787
5.979
6.149
6.299
6.431
6.547
6.649
6.739
6.819
6.889
6.951
7.005
7.053
7.095

14. OX
0.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
5.453
5.66
5.842
6.002
6.142
6.265
6.373
6.467
6.55
6.623
6.687
6.743
6.792
6.835
6.873

14. 5X
0.873
1.636
2.302
2.884
3.392
3.836
4.224
4.562
4.858
5.116
5.341
5.538
5.71
5.861
5.992
6.106
6.206
6.294
6.37
6.437
6.495
6.546
6.59
6.629
6.663

15. OX
0.87
1.626
2.283
2.855
3.352
3.784
4.16
4.487
4.772
5.019
5.234
5.421
5.583
5.724
5.847
5.954
6.047
6.128
6.198
6.259
6.312
6.359
6.399
6.434
6.464

15. 5X
0.866
1.615
2.264
2.826
3.313
3.734
4.099
4.415
4.688
4.925
5.13
5.307
5.461
5.594
5.709
5.808
5.895
5.969
6.034
6.09
6.139
6.181
6.217
6.249
6.276

16. OX
0.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833
5.029
5.197
5.342
5.468
5.575
5.668
5.749
5.818
5.877
5.929
5.973
6.011
6.044
6.073
6.097

16. SX
0.858
1.595
2.228
2.77
3.236
3.636
3.98
4.274
4.527
4.745
4.931
5.091
5.228
5.346
5.447
5.534
5.609
5.673
5.728
5.775
5.815
5.85
5.88
5.905
5.927

17. OX
0.855
1.585
2.21
2.743
3.199
3.589
3.922
4.207
4.451
4.659
4.836
4.988
5.118
5.229
5.324
5.405
5.475
5.534
5.584
5.628
5.665
5.696
5.723
5.746
5.766

17.5X
0.851
1.575
2.192
2.716
3.163
3.543
3.866
4.142
4.376
4.575
4.745
4.889
5.012
5.117
5.206
5.281
5.346
5.401
5.447
5.487
5.521
5.55
5.574
5.595
5.613

18. OX
0.847
1.566
2.174
2.69
3.127
3.498
3.812
4.078
4.303
4.494
4.656
4.793
4.91
5.008
5.092
5.162
5.222
5.273
5.316
5.353
5.384
5.41
5.432
5.451
5.467

18. 5X
0.844
1.556
2.157
2.664
3.092
3.453
3.758
4.015
4.232
4.415
4.57
4.7
4.81
4.903
4.982
5.048
5.104
5.151
5.191
5.224
5.252
5.276
5.296
5.313
5.328

19. OX
0.84
1.547
2.14
2.639
3.058
3.41
3.706
3.954
4.163
4.339
4.486
4.611
4.715
4.802
4.876
4.938
4.99
5.033
5.07
5.101
5.127
5.149
5.167
5.182
5.195

19.5X
0.837
1.537
2.123
2.613
3.024
3.367
3.655
3.895
4.096
4.265
4.406
4.523
4.622
4.705
4.774
4.832
4.88
4.921
4.954
4.983
5.007
5.026
5.043
5.057
5.069

20.
0.83
1.52
2.10
2.58
2.99
3.32
3.60
3.83
4.03
4.19
4.32
4.43
4.53
4.61
4.67
4.7
4.771
4.81;
4.84!
4.8;
4.89
4.90-
4.92!
4.93;
4.941
NOTE: " A " = raised to the power of...

-------
                                                                               APPENDIX  D-3
                                                                 DISCOUNTING  FACTOR  FOR  REPLACEMENT  COSTS
                                                                   FORMULA:   1/(1-1/(1+R)'n)«(1/(1+Rrn)
No. of
Years
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

10. OX
10
4.762
3.021
2.155
1.638
1.296
1.054
0.874
0.736
0.627
0.54
0.468
0.408
0.357
0.315
0.278
0.247
0.219
0.195
0.175
0.156
0.14
0.126
0.113
0.102

10. 5X
9.524
4.524
2.863
2.037
1.545
1.219
0.989
0.818
0.687
0.583
0.5
0.432
0.376
0.328
0.288
0.254
0.224
0.199
0.176
0.157
0.14
0.125
0.112
0.1
0.09

11. OX
9.091
4.308
2.72
1.93
1.46
1.149
0.929
0.767
0.642
0.544
0.465
0.4
0.347
0.302
0.264
0.232
0.204
0.18
0.16
0.142
0.126
0.112
0.1
0.089
0.079

11. 5X
8.696
4.111
2.589
1.833
1.382
1.085
0.875
0.72
0.601
0.508
0.433
0.371
0.321
0.279
0.243
0.212
0.186
0.164
0.145
0.128
0.113
0.1
0.089
0.079
0.07

12. OX
8.333
3.931
2.47
1.744
1.312
1.027
0.826
0.678
0.564
0.475
0.403
0.345
0.297
0.257
0.224
0.195
0.17
0.149
0.131
0.116
0.102
0.09
0.08
0.071
0.062

12. 5X
8
3.765
2.359
1.662
1.247
0.973
0.781
0.639
0.53
0.445
0.377
0.322
0.276
0.238
0.206
0.179
0.156
0.136
0.119
0.105
0.092
0.081
0.071
0.063
0.056

13. OX
7.692
3.611
2.258
1.586
1.187
0.924
0.739
0.603
0.499
0.418
0.353
0.3
0.257
0.221
0.19
0.165
0.143
0.125
0.109
0.095
0.083
0.073
0.064
0.056
0.049

13. 5X
7.407
3.47
2.164
1.516
1.132
0.879
0.701
0.57
0.47
0.392
0.33
0.28
0.239
0.205
0.176
0.152
0.131
0.114
0.099
0.086
0.075
0.066
0.057
0.05
0.044

14. OX
7.143
3.338
2.077
1.451
1.081
0.837
0.666
0.54
0.444
0.369
0.31
0.262
0.223
0.19
0.163
0.14
0.121
0.104
0.09
0.078
0.068
0.059
0.052
0.045
0.039

14. 5X
6.897
3.215
1.996
1.391
1.033
0.798
0.633
0.512
0.42
0.348
0.291
0.245
0.208
0.177
0.151
0.129
0.111
0.096
0.083
0.071
0.062
0.054
0.046
0.04
0.035

15. OX
6.667
3.101
1.92
1.335
0.989
0.762
0.602
0.486
0.397
0.328
0.274
0.23
0.194
0.165
0.14
0.12
0.102
0.088
0.076
0.065
0.056
0.048
0.042
0.036
0.031

15. 5X
6.452
2.994
1.849
1.283
0.947
0.728
0.574
0.461
0.376
0.31
0.258
0.216
0.181
0.153
0.13
0.111
0.094
0.081
0.069
0.059
0.051
0.044
0.038
0.033
0.028

16. OX
6.25
2.894
1.783
1.234
0.909
0.696
0.548
0.439
0.357
0.293
0.243
0.203
0.17
0.143
0.121
0.103
0.087
0.074
0.063
0.054
0.046
0.04
0.034
0.029
0.025

16. 5X
6.061
2.799
1.721
1.188
0.873
0.667
0.523
0.418
0.339
0.277
0.229
0.19
0.159
0.134
0.113
0.095
0.081
0.068
0.058
0.049
0.042
0.036
0.031
0.026
0.022

17. OX
5.882
2.711
1.662
1.144
0.839
0.639
0.5
0.398
0.322
0.263
0.216
0.179
0.149
0.125
0.105
0.088
0.074
0.063
0.053
0.045
0.038
0.033
0.028
0.024
0.02

17. 5X
5.714
2.627
1.607
1.104
0.807
0.613
0.478
0.38
0.306
0.249
0.204
0.169
0.14
0.117
0.098
0.082
0.069
0.058
0.049
0.041
0.035
0.03
0.025
0.021
0.018

18. OX
5.556
2.548
1.555
1.065
0.777
0.588
0.458
0.362
0.291
0.236
0.193
0.159
0.132
0.109
0.091
0.076
0.064
0.054
0.045
0.038
0.032
0.027
0.023
0.019
0.016

18. 5X
5.405
2.474
1.506
1.029
0.748
0.565
0.438
0.346
0.277
0.224
0.183
0.15
0.124
0.102
0.085
0.071
0.059
0.049
0.041
0.035
0.029
0.024
0.021
0.017
0.015

19. OX
5.263
2.403
1.46
0.995
0.721
0.544
0.42
0.331
0.264
0.213
0.173
0.142
Vl16
0.096
0.079
0.066
0.055
0.046
O.Q38
0.032
0.027
0.022
0.019
0.016
0.013

19.5X
5.128
2.336
1.415
0.962
0.696
0.523
0.403
0.317
0.252
0.202
0.164
0.134
0.109
0.09
0.074
0.06*
0.051
0.042
0.035
0.029
0.024
0.02
0.017
0.014
0.012

20. (
.
2.27:
1.37'
0.93
0.67;
0.50'
0.38:
0.30:
0.2'
0.19
0.15i
0.12
0.10
0.08
0.06
0.05
0.04
0.03
0.03
0.02
0.02
0.01
0.01
0.01
0.01
NOTE: » • •• a raised to the power of...

-------
                    APPENDIX D-4
      NET ECONOMIC BENEFIT ADJUSTMENT FACTOR
(Present value of $1 to be received in nth month.)

              FORMULA:  1/<1+R)*(n/12)
No. Of
Months
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

10.0X
0.992
0.984
0.976
0.969
0.961
0.953
0.946
0.938
0.931
0.924
0.916
0.909
0.902
0.895
0.888
0.881
0.874
0.867
0.86
0.853
0.846
0.84
0.833
0.826
0.82

10.5X
0.992
0.983
0.975
0.967
0.959
0.951
0.943
0.936
0.928
0.92
0.913
0.905
0.897
0.89
0.883
0.875
0.868
0.861
0.854
0.847
0.84
0.833
0.826
0.819
0.812

11. OX
0.991
0.983
0.974
0.966
0.957
0.949
0.941
0,933
0.925
0.917
0.909
0.901
0.893
0.885
0.878
0.87
0.863
0.855
0.848
0.84
0.833
0.826
0.819
0.812
0.805

11. 5X
0.991
0.982
0.973
0.964
0.956
0.947
0.938
0.93
0.922
0.913
0.905
0.897
0.889
0.881
0.873
0.865
0.857
0.849
0.842
0.834
0.827
0.819
0.812
0.804
0.797

12.0X
0.991
0.981
0.972
0.963
0.954
0.945
0.936
0.927
0.919
0.91
0.901
0.893
0.884
0.876
0.868
0.86
0.852
0.844
0.836
0.828
0.82
0.812
0.805
0.797
0.79

12. 5X
0.99
0.981
0.971
0.961
0.952
0.943
0.934
0.924
0.915
0.907
0.898
0.889
0.88
0.872
0.863
0.855
0.846
0.838
0.83
0.822
0.814
0.606
0.798
0.79
0.782

13. OX
0.99
0.98
0.97
0.96
0.95
0.941
0.931
0.922
0.912
0.903
0.894
0.885
0.876
0.867
0.858
0.85
0.841
0.832
0.824
0.816
0.807
0.799
0.791
0.783
0.775

13. 5X
0.99
0.979
0.969
0.959
0.949
0.939
0.929
0.919
0.909
0.9
0.89
0.881
0.872
0.863
0.854
0.845
0.836
0.827
0.818
0.81
0.801
0.793
0.784
0.776
0.768

14.0X
0.989
0.978
0.968
0.957
0.947
0.937
0.926
0.916
0.906
0.897
0.887
0.877
0.868
0.858
0.849
0.84
0.831
0.822
0.813
0.804
0.795
0.786
.0.778
0.769
0.761

14. 5X
0.989
0.978
0.967
0.956
0.945
0.935
0.924
0.914
0.903
0.893
0.883
0.873
0.864
0.854
0.844
0.835
0.825
0.816
0.807
0.798
0.789
0.78
0.771
0.763
0.754

15. OX
0.988
0.977
0.966
0.954
0.943
0.933
0.922
0.911
0.9
0.89
0.88
0.87
0.859
0.85
0.84
0.83
0.82
0.811
0.801
0.792
0.783
0.774
0.765
0.756
0.747

15. 5X
0.988
0.976
0.965
0.953
0.942
0.93
0.919
0.908
0.898
0.887
0.876
0.866
0.855
0.845
0.835
0.825
0.815
0.806
0.796
0.786
0.777
0.768
0.759
0.75
0.741

16. OX
0.988
0.976
0.964
0.952
0.94
0.928
0.917
0.906
0.895
0.884
0.873
0.862
0.851
0.841
0.831
0.82
0.81
0.8
0.791
0.781
0.771
0.762
0.752
0.743
0.734

16.5X
0.987
0.975
0.963
0.95
0.938
0.926
0.915
0.903
0.892
0.88
0.869
0.858
0.848
0.837
0.826
0.816
0.805
0.795
0.785
0.775
0.765
0.756
0.746
0.737
0.727

17.0X
0.987
0.974
0.962
0.949
0.937
0.925
0.912
0.901
0.889
0.877
0.866
0.855
0.844
0.833
0.822
0.811
0.801
0.79
0.78
0.77
0.76
0.75
0.74
0.731
0.721

17.5X
0.987
0.973
0.96
0.948
0.935
0.923
0.91
0.898
0.886
0.874
0.863
0.851
0.84
0.828
0.817
0.807
0.796
0.785
0.775
0.764
0.754
0.744
0.734
0.724
0.715

18.0X
0.986
0.973
0.959
0.946
0.933
0.921
0.908
0.896
0.883
0.871
0.859
0.847
0.836
0.824
0.813
0.802
0.791
0.78
0.769
0.759
0.749
0.738
0.728
0.718
0.708

18.5X
0.986
0.972
0.958
0.945
0.932
0.919
0.906
0.893
0.88
0.868
0.856
0.844
0.832
0.82
0.809
0.797
0.786
0.775
0.764
0.754
0.743
0.733
0.722
0.712
0.702

19.0X
0.986
0.971
0.957
0.944
0.93
0.917
0.904
0.891
0.878
0.865
0.853
0.84
0.828
0.816
0.805
0.793
0.782
0.77
0.759
0.748
0.738
0.727
0.716
0.706
0.696

19.5X
0.985
0.971
0.956
0.942
0.928
0.915
0.901
0.888
0.875
0.862
0.849
0.837
0.824
0.812
0.8
0.789
0.777
0.766
0.754
0.743
0.732
0.721
0.711
0.7
0.69

20.1
0.98!
0.9
0.95!
0.94
0.92;
0.91;
O.B9<
0.881
0.871
0.851
0.84(
0.83]
0.821
0.80C
0.79<
0.7W
0.772
0.761
0.749
0.738
0.727
0.716
0.705
0.694
0.684

-------
                                                                               APPENDIX 0-4  (coot.)
No. of
Months
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50

10.0X
0.813
0.807
0.801
0.794
0.788
0.782
0.776
0.769
0.763
0.757
0.751
0.745
0.739
0.734
0.728
0.722
0.716
0.711
0.705
0.699
0.694
0.688
0.683
0.678
0.672

10.5X
0.805
0.799
0.792
0.786
0.779
0.773
0.766
0.76
0.754
0.747
0.741
0.735
0.729
0.723
0.717
0.711
0.705
0.699
0.693
0.688
0.682
0.676
0.671
0.665
0.66

11. OX
0.798
0.791
0.784
0.777
0.77
0.764
0.757
0.751
0.744
0.738
0.731
0.725
0.719
0.712
0.706
0.7
0.694
0.688
0.682
0.676
0.67
0.664
0.659
0.653
0.647

11.5X
0.79
0.783
0.776
0.769
0.762
0.755
0.748
0.741
0.735
0.728
0.721
0.715
0.708
0.702
0.696
0.669
0.683
0.677
0.671
0.665
C.659
0.653
0.647
0.641
0.635

12.0X
0.782
0.775
0.768
0.76
0.753
0.746
0.739
0.732
0.725
0.719
0.712
0.705
0.698
0.692
0.685
0.679
0.673
0.666
0.66
0.654
0.648
0.642
0.636
0.63
0.624

12.5X
0.775
0.767
0.76
0.752
0.745
0.738
0.73
0.723
0.716
0.709
0.702
0.695
0.689
0.682
0.675
0.669
0.662
0.656
0.649
0.643
0.637
0.63
0.624
0.618
0.612

13. OX
0.767
0.76
0.752
0.744
0.737
0.729
0.722
0.715
0.707
0.7
0.693
0.686
0.679
0.672
0.665
0.659
0.652
0.645
0.639
0.632
0.626
0.62
0.613
0.607
0.601

13. 5X
0.76
0.752
0.744
0.736
0.729
0.721
0.713
0.706
0.699
0.691
0.684
0.677
0.67
0.663
0.656
0.649
0.642
0.635
0.629
0.622
0.615
0.609
0.603
0.596
0.59

14.0X
0.753
0.745
0.737
0.729
0.721
0.713
0.705
0.697
0.69
0.682
0.675
0.668
0.66
0.653
0.646
0.639
0.632
0.625
0.619
0.612
0.605
0.599
0.592
0.586
0.579

14. 5X
0.746
0.737
0.729
0.721
0.713
0.705
0.697
0.689
0.681
0.674
0.666
0.659
0.651
0.644
0.637
0.63
0.623
0.616
0.609
0.602
0.595
0.588
0.582
0.575
0.569

15. OX
0.739
0.73
0.722
0.713
0.705
0.697
0.689
0.681
0.673
0.665
0.658
0.65
0.642
0.635
0.628
0.62
0.613
0.606
0.599
0.592
0.585
0.578
0.572
0.565
0.559

15. 5X
0.732
0.723
0.714
0.706
0.698
0.689
0.681
0.673
0.665
0.657
0.649
0.641
0.634
0.626
0.619
0.611
0.604
0.597
0.59
0.583
0.576
0.569
0.562
0.555
0.549

16.0X
0.725
0.716
0.707
0.699
0.69
0.682
0.673
0.665
0.657
0.649
0.641
0.633
0.625
0.617
0.61
0.602
0.595
0.588
0.58
0.573
0.566
0.559
0.552
0.546
0.539

16.5X
0.718
0.709
0.7
0.691
0.683
0.674
0.665
0.657
0.649
0.641
0.632
0.624
0.617
0.609
0.601
0.593
0.586
0.579
0.571
0.564
0.557
0.55
0.543
0.536
0.529

17.0X
0.712
0.702
0.693
0.684
0.675
0.667
0.658
0.649
0.641
0.633
0.624
0.616
0.608
0.6
0.593
0.585
0.577
0.57
0.562
0.555
0.548
0.541
0.534
0.527
0.52

17.5X
0.705
0.696
0.686
0.677
0.668
0.659
0.65
0.642
0.633
0.625
0.616
0.608
0.6
0.592
0.584
0.576
0.569
0.561
0.554
0.546
0.539
0.532
0.525
0.518
0.511

18.0X
0.699
0.689
0.68
0.67
0.661
0.652
0.643
0.634
0.626
0.617
0.609
0.6
0.592
0.584
0.576
0.568
0.56
0.553
0.545
0.538
0.53
0.523
0.516
0.509
0.502

18.5X
0.692
0.683
0.673
0.664
0.654
0.645
0.636
0.627
0.618
0.61
0.601
0.593
0.584
0.576
0.568
0.56
0.552
0.544
0.537
0.529
0.522
0.514
0.507
0.5
0.493

19.0X
0.686
0.676
0.666
0.657
0.647
0.638
0.629
0.62
0.611
0.602
0.593
0.585
0.576
0.568
0.56
0.552
0.544
0.536
0.528
0.521
0.513
0.506
0.499
0.491
0.484

19.5X
0.68
0.67
0.66
0.65
0.641
0.631
0.622
0.613
0.604
0.595
0.586
0.577
0.569
0.56
0.552
0.544
0.536
0.528
0.52
0.513
0.505
0.498
0.49
0.483
0.476

20.0
0.674
0.66<
0.653
0.644
0.634
0.624
0.61!
0.6CM
0.595
0.581
0.57!
0.5;
0.561
0.55]
0.54!
0.53(
0.521
0.5!
0.51;
0.50!
0.49;
0.4<
0.48;
0.47
0.46
NOTE:  " * " = raised to the power of...

-------