Discussion
Assertion (A): The discount rate strongly influences whether a coastal scheme is justified.
Reason (R): Benefits arising in fifty years carry very little present value at a high rate.
Answer: A
Correct answer: Both A and R are true, and R is the correct explanation of A
Both are true and the reason gives the arithmetic. At a discount rate of six per cent a benefit fifty years hence is worth about five per cent of its face value today, while the capital cost falls now and is undiscounted. Coastal schemes deliver most of their benefit far in the future, so they are acutely sensitive to the rate chosen - and the case for using a declining rate for long horizons rests on exactly this.
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