Let’s assume that a board chairman of a construction company claims his team to make a

comparison between two potential real estate development projects to be constructed. He also
reminds them that the company’s financial health is getting poor so he has to select one of
them.

The team works and lists below the potential incomes and costs of each project.

Assumptions

Note: In order to simplify the cost benefit analysis example, we will not make a net present
value calculation for each cost and income.

Project 1

– 500 housing units will be constructed.

– 400 of them will be sold and 100 of them will be rented for 20 years.
– Rental Price of each unit is 4,000 USD per year
– Rented 100 units will be sold 70,000 USD after 20 years.
– Construction Cost of each unit is 100,000 USD.
– The sale price of each unit is 120,000 USD.
– The project needs a luxury sales office with a price of 2,000,000 USD.
– The sales personnel cost is 300,000 USD per year.
– The project duration is 3 years.
– Project financing cost is 3,000,000 USD per year

Project 2

– 400 housing units will be constructed.

– 350 of them will be sold and 50 of them will be rented for 15 years.
– Rented 50 units will be sold 80,000 USD after 15 years.
– Rental Price of each unit is 4,500 USD per year
– Construction Cost of each unit is 90,000 USD.
– The sale price of each unit is 135,000 USD.
– The project needs a luxury sales office with a price of 3,000,000 USD.
– The sales personnel cost is 250,000 USD per year.
– The project duration is 2 years.
– Project financing cost is 2,500,000 USD per year

Comparing the Project Parameters

In this cost benefit analysis example, we will calculate the amount of money to be spent and
the amount of money to be earned from each project.