Market/Demand Analysis; Cost-Benefit Analysis Flashcards
Involves the estimation of market demand for the output/s of the proposed project.
• Identification and analysis of demand determinants
• Estimation of past and present demand
• Projection of future demand
Demand Analysis
A procedure based on the idea of economic feasibility for determining if projected benefits of an alternative are greater than its projected costs.
Net Present Value
To compute for net worth is to subtract _____ from _____.
costs
benefits
___________ attempts to incorporate judgmental or subjective factors into the forecasting model. They are especially useful when subjective factors are expected to be very important or when accurate quantitative data are difficult to obtain.
Qualitative model
The primary rationale of Cost-Benefit Analysis is that when choosing among alternative courses of action, the decision should pursue that which produces the greatest ________.
net benefit
Computing for the _____ usually requires several trials before it is found.
IRR
It is used to assess the economic rationality and financial feasibility of a project.
Cost-Benefit Analysis
Extends the concept of net worth to accommodate streams of costs and benefits.
Net Present Value
This model attempts to predict the future by using historical data.
Time series model
The decision to accept or reject the project depends upon whether or not the _____ exceeds this minimum acceptable rate.
IRR
________ or economic efficiency exists when the benefits from a public program or project exceed the costs of that program.
Economic Feasibility
Decision Criteria for Cost-Benefit Analysis
- Economic Feasibility
- Pareto Criterion
- Kaldor-Hicks Criterion
It is a multiplication factor that is used to convert future values into its equivalent values in the present time.
Discount Factor
The method requires the calculation of a discount rate such that the discounted value of future cost-benefit flows exactly equal the initial investment.
Internal Rate of Return (IRR)
Any analyst or anyone employing this method for alternatives evaluation should first find the two numerically consecutive discount rates (in percentage) with which one would yield a ______ and the other a ______.
positive NPV
negative NPV
Assesses the potential sales/consumption of the product, absorption and market capture rates and the project’s timing
Market Study
________ formalizes the definition of economic efficiency by favoring those policies, programs and/or projects in which at least one person is better off and no person is worse off as a result.
Pareto Criterion
Examines the marketability of the product or services and convinces decisionmakers that there is a potential market for the product or services.
Market Study
Factors in Marketing Program
- Transportation
- Terms of Payment
- Incentives
- Packaging
- Brand
- Administrative Accessibility
This model makes the assumption that happens in the future is a function of what has happened in then past.
Time series model
It is only a tool, and the decision maker—including the analyst—must realize that the bottom line in a _________ may or may not be the “right” decision when taking into account political, social, and other factors.
Cost-Benefit Analysis
Designs the appropriate marketing strategies and plans that will help ensure that a project’s target users are reached and will accept the project outputs.
Market Study
To determine whether or not to pursue a project, the calculated _____ must be compared to a minimum acceptable rate of return that should reflect the time value of money, risk, etc.
IRR
________ states that a policy, program or project should be adopted if the winners could in principle compensate the losers, which requires that the total benefits outweigh the total costs.
Kaldor-Hicks Criterion
Forecasting Models
- Time series model
- Causal model
- Qualitative model
Any value greater than _____ indicates that there are more benefits than costs.
1
Steps in Forecasting
- Determine the use of the forecast – what objective are we trying to obtain
- Select the items or quantities that are to be forecasted
- Determine the time horizon
- Select the forecasting model or models
- Gather the data needed to forecast
- Validate the forecasting model
- Make the forecast
- Implement results
Limitations of Cost-Benefit Analysis
- How do you calculate and translate costs and benefits into monetary terms?
- Some CBAs only consider one’s own costs and benefits, and not the costs and benefits a decision may impose on others.
- CBA cannot deal with distributional questions.
Determines the extent to which goods and services to be generated by the project are needed or demanded.
Market Study
A ratio of ______ indicates that the total discounted benefits is equal to the total discounted costs.
1
Indicates the combined effect of the discount rate and the time period (i.e., number of years) that the discounting must occur.
Discount Factor
This model incorporates the variables or factors that might influence the quantity being forecasted into the forecasting model
Causal model
This is a procedure for translating projected costs and benefits from their monetary values in the future into their equivalent values at present.
Discounting
Demand Determinants
- Population
- Income
- Prices
- Substitutes
- Policies
- Investment
- Consumer taste
Pointers in Calculating Costs and Benefits
- Costs of acquisition and construction
- Operating costs
- Costs of alternative uses of the land (or other capital)
- Future costs and benefits
- Costs by others (externalities)
- Revenues as benefits
- Other benefits
- Indirect benefits and costs
The rate chosen by the analyst to translate future costs and benefits to their equivalent values in the present.
Discount Rate
Advantages of Cost-Benefit Analysis
> It forces the analyst to make explicit the foreseeable costs and benefits.
> In consciously applying cost-benefit techniques, the aim is to bring to light all the costs and benefits that can be foreseen and try to assess their relative weights.
Factors in Pricing
- Direct (User fees)
- Indirect (Tax and subsidies)
- Shared pay (Insurance)
Is the ratio of the total discounted benefits over the total discounted costs.
Benefit-Cost Ratio
A higher ________ will have the effect of producing a small equivalent value.
discount rate
Is an approach to project recommendation that compares the monetary value of costs against the monetary value of benefits.
Cost-Benefit Analysis
