Research On Discount Rate In Life-cycle Cost Analysis Of Construction Project

The value and method of discount rate directly affect the selection of structuralrepair scheme, which influences the long-term durability of structures based onlife-cycle cost analysis (LCCA) method. Simple fixed social discount rate of the costanalysis can not reflect the economic difference in different regions. It is also notsuitable for the analysis of lifetime cost more than one hundred years.In the view of the above question, the suitable processing method should be basedon the benchmark interest rate of construction industry, to analyze the cost of thediscount rate.Firstly, construct related risk analysis index system according to the factors thataffect the financial benchmark discount rate. The analysis index system includes4first-level indexes which are industry risk, business risk, financial risk and inflation risk,and15second-level indexes accordingly. Use principal component analysis and clusteranalysis method to partition the construction industry in our country. The result showsthat it is more reasonable to divide our country into three categories according to theeconomic development level in each district and the category is parallel to the economicsituation of different regions.Secondly, calculate the financial benchmark discount rate in each region of ourcountry by using the weighted average cost of capital (WACC). The result shows thatthe financial benchmark discount rate differs from areas in construction industry.Combining with the zoning category, it is recommended that the benchmark discountrate of three categories of construction industry of China should be10%,11%,10%respectively.Finally, verify that the long period of discount rate will decrease with passage oftime via the random number model. Forecast the long-term discount rate of life-cyclecost analysis in construction industry and result reveals that the long-term discount rateis a logarithmic function with passage of time. Research on historical data of USAconstruction industry suggests discount rate in developed countries represented by theUSA is low. It can provide a reference to the long period discount rate value ofconstruction industry in China. A conclusion is made: at present, the development of the construction industry ofdifferent regions of China is not balanced. Construction enterprises of different regionsshould determine the financial benchmark discount rate by the level of risk they arefacing. Long-term construction project should take a declining discount rate.