Market/Demand Analysis; Cost-Benefit Analysis

Question 1

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

Answer 1

Demand Analysis

Question 2

A procedure based on the idea of economic feasibility for determining if projected benefits of an alternative are greater than its projected costs.

Answer 2

Net Present Value

Question 3

To compute for net worth is to subtract _____ from _____.

Answer 3

costs

benefits

Question 4

___________ 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.

Answer 4

Qualitative model

Question 5

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 ________.

Answer 5

net benefit

Question 6

Computing for the _____ usually requires several trials before it is found.

Answer 6

IRR

Question 7

It is used to assess the economic rationality and financial feasibility of a project.

Answer 7

Cost-Benefit Analysis

Question 8

Extends the concept of net worth to accommodate streams of costs and benefits.

Answer 8

Net Present Value

Question 9

This model attempts to predict the future by using historical data.

Answer 9

Time series model

Question 10

The decision to accept or reject the project depends upon whether or not the _____ exceeds this minimum acceptable rate.

Answer 10

IRR

Question 11

________ or economic efficiency exists when the benefits from a public program or project exceed the costs of that program.

Answer 11

Economic Feasibility

Question 12

Decision Criteria for Cost-Benefit Analysis

Answer 12

1. Economic Feasibility
2. Pareto Criterion
3. Kaldor-Hicks Criterion

Question 13

It is a multiplication factor that is used to convert future values into its equivalent values in the present time.

Answer 13

Discount Factor

Question 14

The method requires the calculation of a discount rate such that the discounted value of future cost-benefit flows exactly equal the initial investment.

Answer 14

Internal Rate of Return (IRR)

Question 15

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 ______.

Answer 15

positive NPV

negative NPV

Question 16

Assesses the potential sales/consumption of the product, absorption and market capture rates and the project’s timing

Answer 16

Market Study

Question 17

________ 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.

Answer 17

Pareto Criterion

Question 18

Examines the marketability of the product or services and convinces decisionmakers that there is a potential market for the product or services.

Answer 18

Market Study

Question 19

Factors in Marketing Program

Answer 19

• Transportation
• Terms of Payment
• Incentives
• Packaging
• Brand
• Administrative Accessibility

Question 20

This model makes the assumption that happens in the future is a function of what has happened in then past.

Answer 20

Time series model

Question 21

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.

Answer 21

Cost-Benefit Analysis

Question 22

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.

Answer 22

Market Study

Question 23

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.

Answer 23

IRR

Question 24

________ 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.

Answer 24

Kaldor-Hicks Criterion

Question 25

Forecasting Models

Answer 25

1. Time series model
2. Causal model
3. Qualitative model

Question 26

Any value greater than _____ indicates that there are more benefits than costs.

Answer 26

1

Question 27

Steps in Forecasting

Answer 27

• 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

Question 28

Limitations of Cost-Benefit Analysis

Answer 28

• 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.

Question 29

Determines the extent to which goods and services to be generated by the project are needed or demanded.

Answer 29

Market Study

Question 30

A ratio of ______ indicates that the total discounted benefits is equal to the total discounted costs.

Answer 30

1

Question 31

Indicates the combined effect of the discount rate and the time period (i.e., number of years) that the discounting must occur.

Answer 31

Discount Factor

Question 32

This model incorporates the variables or factors that might influence the quantity being forecasted into the forecasting model

Answer 32

Causal model

Question 33

This is a procedure for translating projected costs and benefits from their monetary values in the future into their equivalent values at present.

Answer 33

Discounting

Question 34

Demand Determinants

Answer 34

1. Population
2. Income
3. Prices
4. Substitutes
5. Policies
6. Investment
7. Consumer taste

Question 35

Pointers in Calculating Costs and Benefits

Answer 35

• 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

Question 36

The rate chosen by the analyst to translate future costs and benefits to their equivalent values in the present.

Answer 36

Discount Rate

Question 37

Advantages of Cost-Benefit Analysis

Answer 37

> 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.

Question 38

Factors in Pricing

Answer 38

• Direct (User fees)
• Indirect (Tax and subsidies)
• Shared pay (Insurance)

Question 39

Is the ratio of the total discounted benefits over the total discounted costs.

Answer 39

Benefit-Cost Ratio

Question 40

A higher ________ will have the effect of producing a small equivalent value.

Answer 40

discount rate

Question 41

Is an approach to project recommendation that compares the monetary value of costs against the monetary value of benefits.

Answer 41

Cost-Benefit Analysis