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fixed estimate of the net VSLY. This estimate was $151,000 16 in 2006, which inflates to$157,795 in 2008 dollars. This is very similar to the average net VSLY estimated using theAccess Economics (2008) meta-analysis, and is suggested for calculations in modellinghere.2.3.7 NET PRESENT VALUE AND THE DISCOUNT RATEWhere future costs are ascribed to the year 2007 throughout the report the formula forcalculating the NPV of those cost streams is provided below.NPV = ΣC i /(1+r)^i where i=0,1,2….nwhereC i = cost in year i, n = years that costs are incurred and r = discount rate.Choosing an appropriate discount rate is a subject of some debate, as it varies depending onwhat type of future income or cost stream is being considered. The discount rate needs toappropriately take into account risks, inflation and positive time preference. Risk and positive time preference: The minimum option that one can adopt indiscounting future expected healthy life streams and other costs is to set future valueson the basis of a risk free assessment about the future i.e. assume the future flows aresimilar to the certain flows attaching to a long term Government bond. From recenthistory, the long term nominal bond rate has averaged 5.8% per annum (Figure 2-12).If there were no positive time preference, people would be indifferent between havingsomething now or a long way off in the future, which applies to all goods and services.FIGURE 2-12: TEN-YEAR GOVERNMENT BOND YIELDS (DAILY)Source: Bloomberg, Reserve Bank of Australia.Inflation: The Reserve Bank has a clear mandate to pursue a monetary policy thatdelivers 2% to 3% inflation over the course of the economic cycle. This is a realisticlonger run goal and an inflation rate in this range (2.8%) is used in arriving at thediscount rate for healthy life below. It is important to allow for inflation in order to derivea real rather than nominal rate.16 http://www.finance.gov.au/obpr/cost-benefit-analysis.html50