7. Cost-Benefit Analysis Flashcards
What are the eight (8) pointers in calculating costs and benefits?
- Cost of acquisition and construction
- Operating costs
- Costs of alternative uses of the land
- Future costs and benefits
- Costs by others
- Revenues as benefits
- Other benefits
- Indirect benefits and costs
Approach to project recommendations that compared the monetary value of Cost against the monetary value of benefits
Cost Benefit Analysis
Economic efficiency exists when the benefits from a public program or project exceed the cost of the program
Economic Feasibility
The criterion formalizes the definition of economic effeciency by favoring those policies, program or project in which at least one person is better off and no person is worse off as a result
Pareto criterion
States that a policy, program or project should be adopted if the winners could in principle compensate the losers which required to total benefit outweigh the total cost
Kaldor-Hicks Criterion
Procedure for translating projected cost and benefits from monetary values in the future into the equivalent values at present
Discounting
Rate chosen by the analyst to translate future costs and benefits to their equivalent values in the present
Discount rate
Combined effect of the discount rate and the time period
Discount Factor
Procedure based on the idea of economic Feasibility for determining if projected benefits of an alternative are greater than its project costs
Net Present Value
Ratio of the total discounted benefits over the total discounted cost
Benefit-Cost Ratio
The method requires the calculation of a discount rate such that the discounted value of future costs-benefit flows exactly equals the initial investment
Internal Rate of Return
TRUE or FALSE
To determine whether or not to pursue a project, the calculated IRR must be compared to a minimum acceptable rate of return that should reflect the time value of money, risk, etc.
TRUE
TRUE or FALSE
The decision to accept or reject the project depends upon whether or not the IRR exceeds this maximum acceptable rate
FALSE - not maximum
The decision to accept or reject the project depends upon whether or not the IRR exceeds this MINIMUM acceptable rate
FILL IN THE BLANK
Alternative evaluation should first find the two numerically consecutive discount rates with which one yield a ______ and the other a _______
Positive NPV
Negative NPV
