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Cost Benefit Analysis: Decision Making Is About Choices
Cost Benefit Analysis: Decision Making Is About Choices
For a company
Being concerned with the profit earning capacity and income flow, they may undertake a cashflow analysis or a full financial appraisal of the project.
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Private costs:
Those that affect the decisions of the performers (ie production costs including, labour, materials, lands and capital)
External Costs:
Resulting from damage to buildings or decline of property values through smoke emanating from a factory, etc.
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Identify the costs and benefits Quantify the costs and benefits Summarise conclusion
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Benefit
The dam will not start to provide benefits until the water is used for irrigation and crop yields improve. Let us assume this will be in seven years time and the value of this benefit is $100,000,000 per year in future values. We will keep the same inflation rate for ease of comparision.
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What is Feasibility Study? A feasibility study is a report designed to highlight, evaluate and structure the advantages and disadvantages over time of alternative solutions to given problems. The appraisal of the viability of property development schemes.
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Main Purposes
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Main techniques
Payback period Residual Discounted cashflow
Net Present Value Internal Rate of Return
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Payback
Period
Time taken to recoup outlay. The shorter the PB, the more favourable is the project. The PB period for development projects will be either:
Time to when project is sold; or Time to when rental income exceeds development costs.
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Residual
Method
The Value = Selling Price Costs = land cost, building cost, fees, finance etc.
By rearranging the equation, the value of land up for sale can be derive:
Value - [(All costs exc. Land) + (Profit)] = Money available to purchase land.
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