How does use of a Cost-of-Living Adjustment effect the analysis?
Use of a cost-of-living adjustment in a present value analysis reduces the interest rate employed. As mentioned earlier, a lower interest rate will result in a higher present value, and vice-versa. Therefore, if one appraiser uses a COLA in their analysis, and the other does not, they will arrive at different answers. This is true even if all of the other assumptions made by the appraisers were the same.
