Discounting
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You will notice a change in the discounting guidance for 2002.  In the past, there were 5 tables of discounting factors --- now there are 28. 

This is because, in the past, we based our "Discounting Guide" on guidance from CEAC (now, Office of the Deputy Assistant Secretary of the Army, Cost & Economics).  In 2002, CEAC did not issue separate guidance.  They merely referred to the rates issued by OMB (Office of Management and Budget).   Therefore, our "Discounting Guide" for 2002 is based on OMB guidance.

The reason there was a difference in the past between rates based on CEAC guidance and rates based on OMB guidance is:

• Each year, discount rates originate from OMB.  These rates are given for terms of 3, 5, 7, 10, and 30 years, corresponding to the terms of investment instruments issued by the Treasury.
  
• For economic analysis of projects with lives other than 3, 5, 7, 10 and 30 years, OMB's guidance has always been to use linear interpolation to derive the discount rate.
  
• However, rather than interpolate, CEAC has typically used only the five rates issued by OMB and applied them to project lives of 3 years, 4 - 5 years, 6 - 8 years, 9 - 19 years, and 20 - 30 years, respectively.  (Therefore, our past "Discounting Guides" have had at most five tables of discount factors.)
  
• Since, for 2002, we must use OMB guidance, which requires interpolation, we now have separate rates for each year from year 3 to 30, which results in 28 tables of discount rates.

As always, each of the 28 tables has two sets of discount rates: one set for constant dollars and one set for current dollars.

As you may know, the Office of Management and Budget issues discount rates yearly. These rates are given for terms of 3, 5, 7, 10, and 30 years, corresponding to the terms of investment instruments issued by the Treasury.

OMB's guidance has always been that for economic analysis of projects with lives other than 3, 5, 7, 10 and 30 years, a discount rate derived by linear interpolation can be applied.

However, CEAC (now, Office of the Deputy Assistant Secretary of the Army, Cost & Economics) guidance, the basis of our Discounting Guide, has typically used only those five rates and applied them to project lives of 3 years, 4 and 5 years, 6 through 8 years, 9 through 19 years, and 20 through 30 years, respectively.

Therefore, past Guides have had at most five tables of discount factors corresponding to five discount rates applied to economic analyses.

This situation has changed. In 2002, CEAC did not issue separate guidance, merely referring to the OMB circular in which the rates appear.

Therefore, we must now follow OMB guidance, which states that linear interpolation is to be used to determine discount rates for economic analysis of projects whose lives do not correspond to the five terms of maturity of the investment instruments.

In practical terms, this means that in place of five sets of two discount rates (one rate each for constant dollars and for current dollars), there are now twenty-eight sets of two discount rates, and therefore twenty-eight tables of discount factors to be found in the Discounting Guide.