Project Appraisal and Cost Benefit Analysis

  1. What are the main features that distinguish a cost benefit analysis from a financial analysis?

  2. Why is a discount rate used in CBA and how should the level be determined?

  3. ATTACHED

Answers
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jemslie
23 May 2013
Cost benefit analysis is not purely a financial exercise, it should cover a variety of additional areas like customer service benefits and maybe health and safety, which would could well disqualify an investment on purely financial grounds.
hyperion
24 May 2013
The discount rate is the company's cost of capital, which is explained well at en.wikipedia.org/wiki/Cost_of_capital
hyperion
24 May 2013
You can rank the projects according to NPV or capital cost. You could even calculate the NPV per £ of capital spent.
hyperion
24 May 2013
Section d requires you to establish criteria for project selection. The information available is limited, so it would be a choice based on maximising the NPV for the organisation or finding a way of simply spending as much of the money as possible, as there may be non-financial factors in play that make the decision not one that should be solely based on the financial outcome.
hyperion
24 May 2013
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