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Methods of Analysis
Present worth Future worth Annual Worth - Finding the annual equivalent cost for each alternative Capitalized cost
Study period
Pay back Period Internal rate of return (IRR)
Principles
1. There must be a common unit of measurement 2. CBA represents values by actual behavior 3. Benefits are usually measured by market choices 4. Measurements of intangibles & tangibles 5. Analysis involves comparison
Numerical
A telecom system is expected to cost $43,250,000 to complete. The revenues generated by the new plant are expected to be $3,875,000 per year while
We can find the present worth or the annual worth PW benefits = 3875000 PW Costs = 43250000 + 2000000 B/C = 89489051.1 / 89437897.34 = 1 = 89489051.1 =89437897.34 Build the plant
Quiz