ABSTRACT

Because of interest and inflation, a dollar in U.S. currency today will be worth more than a dollar in the future. Right off the bat, we must distinguish between the real interest rate, which does not include inflation, and the nominal interest rate, which includes inflation. The real or constant dollar cost analysis considers the return on investment as profit. This type of analysis is frequently used by engineers because it is straightforward, easy to use, and easy to understand. Annual operating and labor costs of $100,000 this year will remain at $100,000/year in 10 years. To be clear, the analysis is stated to be in year 2014 dollars.