Cost Benefit Analysis: Original And Complete Work Only Pleas

Cost Benefit Analysis Original And Complete Work Only Please Please U

Imagine that you are faced with three alternative projects, each of which costs $1,000. Assuming the discount rate of 15 percent, calculate the following for each of the projects: Discounted Benefits, Discounted Costs, Net Present Value (NPV) and Benefit Cost Ratio (BCR). Which one of these projects would you choose to undertake based on the BCR? Explain your answer.

a. A bridge which takes five years to build, then yields $500 benefit per year for the next 10 years. All benefits are received at the end of the year. Assume that the costs are spread out evenly over the first five years and are paid at the end of each year.

b. Temporary classrooms for schools yielding $500 benefit per year for three years. All benefits are received at the end of the year. Assume that all costs are paid at the end of year 1.

c. Tax breaks per year to a foreign auto manufacturer for a new auto plant yielding $200 annual benefit for 30 years. All benefits are received at the end of the year. Assume that all costs are paid up front.

Assuming the discount rate of 5 percent, calculate the following for each of the projects: Discounted Benefits, Discounted Costs, Net Present Value (NPV) and Benefit Cost Ratio (BCR). Which one of these projects would you choose to undertake based on the BCR? Explain your answer.

Assuming the discount rate of 55 percent, calculate the following for each of the projects: Discounted Benefits, Discounted Costs, Net Present Value (NPV) and Benefit Cost Ratio (BCR). Which one of these projects would you choose to undertake based on the BCR? Explain your answer.

Paper For Above instruction

Cost-benefit analysis (CBA) is a systematic approach used by decision makers to evaluate the economic advantages and disadvantages of projects or policies. It involves quantifying in monetary terms both the benefits and costs associated with a project, discounting future values to their present worth, and comparing these to determine the most efficient allocation of resources. This paper discusses the detailed calculations of CBA for three hypothetical projects under different discount rates, providing insights into how varying discount rates impact project selection through changes in net present value (NPV) and benefit-cost ratios (BCR).

1. Analysis at a 15% Discount Rate

The initial scenario involves evaluating three projects with a uniform initial cost of $1,000 each. The discount rate of 15% influences the present value calculations. The first project involves building a bridge over five years, followed by a 10-year benefit period. The costs are spread evenly over the five years, paid at the end of each year, while benefits accrue annually at the end of each year. The second project involves temporary classrooms with benefits for three years; costs are paid at the end of the first year. The third project entails tax breaks to an auto manufacturer for 30 years, with upfront costs and benefits received annually.

For each project, the discounted benefits are calculated by summing the present values of annual benefits. Discounted costs are obtained similarly, considering payment timings. NPV is derived by subtracting discounted costs from discounted benefits. The BCR is obtained by dividing total discounted benefits by total discounted costs. Based on these calculations, the project with the highest BCR indicates the most efficient resource use under the given rate.

For example, the bridge project’s benefits are spread over ten years, initially incurring costs evenly over five years. Discounted benefits are calculated using the present value of an annuity for ten years, discounted at 15%. The costs, spread over five years, are discounted similarly for those years. The NPV and BCR help determine if the project's benefits outweigh its costs at this discount rate, informing the decision to undertake the project.

2. Analysis at a 5% Discount Rate

Reducing the discount rate to 5% increases the present value of future benefits and costs. Performing similar calculations, the benefits of the projects are more heavily weighted owing to the lower discount rate, often leading to higher NPVs and BCRs. This may alter project rankings, possibly favoring long-duration benefits like the auto plant over shorter-term projects.

3. Analysis at a 55% Discount Rate

Conversely, at a high discount rate of 55%, the present value of future benefits diminishes significantly. The benefits accruing in distant future years, especially the 30-year tax break scenario, are heavily discounted, often resulting in lower NPVs and BCRs. Short-term projects with benefits and costs occurring within a few years may appear more favorable compared to long-term projects under such a high rate.

Conclusion: The choice of project depends heavily on the discount rate applied. At lower rates, long-term benefits are valued more, often making projects like the auto plant more attractive. At higher rates, short-term gains are prioritized. Decision makers should carefully consider the appropriate discount rate based on economic conditions and project-specific factors.

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