Economics effective interest rate

If the fractional inflation rate is a fractional interest rate on a loan can be corrected to an effective rate of interest by Eq. (9-116) with ii substituted for (DCFRR). The effect of various amounts of loan, borrowed at various interest rates ii, on the net present value of a particular, fairly simple project is shown in Fig. 9-37. Thus, if 25,000 were borrowed at an interest rate of 15 percent for the project, the (NPV) would be about 43,000 at a zero inflation rate. But if the inflation for goods and services i, is 10 percent, the effective interest rate for that loan can be calculated from Eq. (9-116) to be only 4.55 percent. It is seen from Fig. 9-37 that this increases the (NPV) of the project to 48,000. This confirms the economic advantage of borrowing at a fixed interest rate in a time of general inflation. 

Inflation affects considerably an economic analysis. Higher inflation rate is dissuasive for investors because the time-value of money declines rapidly. However, over a longer period of time a parallel trend between Inflation and banking interest rate has been observed. This effect leads to a much more stable trend of the effective rate ieff = -iinf For example, in Western Europe the decade 1990-2000 has been characterised by low inflation rate, between 1.5 and 3 %, and credits between 5.5 and 7%. The difference gives an effective interest rate almost constant of 4%. 

Two machines, each with a service life of 5 yr, have the following cost comparison. If the effective interest rate is 10%/yr, which machine is more economical ... 

The above-mentioned analyses apply to economic conditions in the United States, in the 2013 time frame. Capital cost amortization can be much different in other countries, depending on the effective interest rate. Japan, for instance, has economic arrangements which result in an effective interest rate in the 2% range. Countries with high inflation rates might have much higher interest rates than those currently applying in the United States. 

A pipeline of 100 mm outside diameter, carrying steam at 420 K, is to be insulated with a lagging material which costs 10/m3 and which has a thermal conductivity of 0.1 W/m K. The ambient temperature may be taken as 285 K, and the coefficient of heat transfer from the outside of the lagging to the surroundings as 10 W/m2 K. If the value of heat energy is 7.5 x 10 4 /MJ and the capital cost of the lagging is to be depreciated over 5 years with an effective simple interest rate of 10 per cent per annum based on the initial investment, what is the economic thickness of the lagging ... 

Figure 2. Skeleton schematic of 1976 system available-energy flows (megawatts). The unit costs of steam and electricity were computed using the equality method and a capital charge of 9.0(10 ) at an effective after-tax interest rate of 8.5% and an economic life of 20 years.

Define the inflation-free interest rate / as the market interest rate with the effects of inflation removed. While this rate is fictitious on the market, because any interest rate available on the market includes the effects of inflation, it is useful in economic analysis. This rate is also termed the real interest rate. 

As noted earlier, economic analysis may be performed on cash flows that are either inflated or not. Thus, two interest rates were defined. The market rate includes the effects of inflation, while these effects are removed from the real interest rate. Here, the corresponding cash flows are defined. 

Long-life reactor core is also associated with an economic disadvantage related to a higher upfront premium or a higher interest rate on fuel cost. For a core with very long lifetime the corresponding effect in cost increase could be quite substantial. Other approaches to improve economic characteristics of small reactors should be used to compensate for this disadvantage. 

Economic conditions unemployment and interest rates Company attributes brand equity, product and service quality, reliability and responsiveness, and sales force effectiveness... 

The results shown in Figure 2.18 reveal some interesting effects of reactor temperature. Because the second reaction has a higher activation energy, its specific reaction rate increases more rapidly with temperature than the first reaction. Therefore the production of the undesirable product D is small at temperatures below 320 K, but increases at higher temperatures. The concentration of the desired component C reaches a maximum at about 332 K. This may or may not be the best temperature at which to operate the reactor. It depends on the economic value or the difficulty of disposing of... 

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