¶ … Value Calculation.
Consider the following scenario: A city wants to open a recycling center aimed at reducing waste. The total benefits of the program are valued at $1,000,000. Three different discount rates are estimated at 5%, 6%, and 7%. The time period for receiving the benefits of the program is two years.
Scenario 1 tasks: Calculate the present value at each interest rate. Note and discuss what happens to the present value at each interest rate.
5% discount rate: 1000 / (1+ .05)^2 = 1000 / 1.1025 = 907.03
6% discount rate: 1000 / (1+ .06)^2 = 1000 / 1.1236 = 890.00
7% discount rate: 1000 / (1+ .07)^2 = 1000 / 1.1449 = 873.44
As the interest rate gets higher, the net present value decreases.
It is also worth noting that the differences between each different percentage point per rate in these examples are roughly about 17 dollars per percentage point over the two-year period. We can also observe that Morgan Friedman's inflation calculator calculates a much more substantial rate of inflation over a recent 2-year period than this. If we use Friedman's tool to calculate the inflation rate for 1000 dollars between 2013 and 2015, we learn that "What cost $1,000 in 2013 would cost $1,041.70 in 2015" (Friedman, westegg.com). This is useful to note when we are considering what happens over a two-year period to net present value.
Scenario 2: Cost-Benefit Analysis?
Cost-benefit analysis is a technique that assumes all costs and benefits can have a dollar value attached to them. It is a tool and should not be used as the sole basis for decision making. The result of a calculation is a ratio between costs and benefits. After all other calculations have been made, the analysis needs to conclude with the calculation of the ratio between costs and benefits. If the ratio costs exceed benefits, the project advice is to not accept the project and to consider accepting the project if benefits exceed costs.
Consider the following example from the fictitious Swobodaville's efforts to build a Community Windmill Renewable Energy Project. The following has been agreed upon:
Land is already owned. The price of a new is windmill is $150,000. A minimum of 50 windmills are needed to achieve desired efficiency compared to the current coal-burning method.
150,000x50 = 7,500,000 COST
Staff training costs over...
Benefit Analysis Memorandum Cost-Benefit Analysis Cost-benefit analyses are routinely conducted for federal programs and proposed federal programs. The researchers propose a cost-benefit analysis for homeland security expenditures designed to address conventional threats to national security. An evaluation of catastrophic threats is specifically excluded from this analysis as only 14% of the federal homeland security budget is directed at the prevention of catastrophic threats to national security. The recommendation from the authors
Benefit Analysis Introduction and Analysis of the Project: Cost-Benefit Analysis of Proposed New Health Warnings on Tobacco Products (Report, 2003) The new regulation introduced in July 2004 to be implemented for all the years till 2030, have significant cost impact on the economy. Certain benefits are also associated with it, the primary ones include health improvement, increased revenues for non-tobacco industry and the decreased healthcare expense. The major costs are related
Dibsa should turn towards the market-based pricing strategy, which sees the implementation of competitive prices for the 3-in-1 Lawnmower. The selection of this combination of strategies would generate several impacts upon the company, but most of them would be obvious at product lifecycle level. In this order of ideas: The sales revenues would be significantly high throughout the first six months and they would allow the company to cover for
Economic Analysis Application of Cost Benefit Analysis EU Proposed Project Overview Traffic Forecast Investment Costs Positive Impact of the Project Economic Net Present Value (ENPV) Cost benefit analysis (CBA) is a systematic process of comparing and calculating the cost benefit of a project. Recent business uncertainties within business environment make increasing number of businesses to implement cost benefit analysis to make a sound investment decision. Cost-benefit analysis is also an explicit or implicit method to assess
Public Administration and Policy Analysis The objective of this work is to compare and contrast the ethics analysis vs. The cost benefits analysis approaches to policy analysis. There is a Greek Proverb, which states, "a society grows great when old men plants trees in whose shade they know they will never sit." (Clowney, 2006) Protection of the health of human beings and the natural environment at one time did not appear to
HSMS Gap Analysis and Hazard Identification Risk Assessments Description of APM Terminals Legal Environment Review of the Health and Safety Management System Description Gap Analysis Hazard Identification Physical Hazards Health and Welfare Hazards Risk Assessment Physical Hazard -- Working at Height - Scaffolding Health & Welfare Hazard -- Noise Action Plans Action Plan 1 - Management System Action Plan 2 -- Hazards and Risks Barbour Checklist: BS OHSAS 18001 Audit Checklist Occupational health and safety management has numerous benefits for business, not only an employer's duty
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now