Welfare analysis of large projects Flashcards
What are examples of projects that need appraising?
- Office development
- Power station
- High speed rail
What does an investment project involve?
Spending money up front to provide a capacity to earn an income later on
We discount things more heavily, the longer:
The wait before they occur
What Net present value figure means the investment is worth it?
A positive NPV
What is the formula for the discounted cash flow?
(1+r)^t
If you are a private firm, revenue should be net of:
Taxes
Are interest costs on loans included in a DCF analysis?
No
What does DCF analysis stand for?
Discounted cash flow
What “other costs” of capital should also be included in a DCF analysis?
- Annual maintenance of capital
- Replacing or upgrading capital
In a DCF analysis, do you discount the profit/loss statement or the cash flow
Cash flow
What are 4 things which are uncertain in future plans?
- Economic growth
- Key prices
- Exchange rates
- Technology
What is a social factor in public sector appraisals
Taxation from the project
What are some external benfits of public projects?
- Regional job gains
- Spillover of cash to other firms
- Environmental subsidies
What are some negative externalities?
- Noise
- Pollution
- Bad smells
- Congestion
