Topic 8: Discounting

Question 1

BCAs need various info

Answer 1

Conditions or outcomes without project

Project actions

Conditions or outcomes with project i.e cause and effect relationship

Valuation of benefits in $ terms

Likely degree of behaviour change

Risks to project success

Timing of benefits and costs

Costs of various types

Question 2

Future value

Answer 2

FV(t) = PV x (1+r)^t

FV(t) = future value t years after present

PV= present value

r= interest rate

t= time in years after present

Question 3

Discount factor

Answer 3

= 1/(1+r)^t

Question 4

Net present value (NPV)

Answer 4

= PV(B) -PV(C)

PV( )= present value function

B= benefits

C= costs

Question 5

Benefit: Cost ratio (BCR)

Answer 5

= PV(B) / PV(C)

Rule for good project: BCR > 1

PV ( ) = present value function

B= benefits

C= costs

Question 6

PV =

Answer 6

Net benefit x discount factor