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T7 P2. Economic Analyses. Economic Estimation. WAG = wild a… guess SWAG = sophisticated WAG WAGNER = WAG not easily refuted. Present Worth Analysis. “Lump sum” future costs Annualized costs. Example - PW Analysis.

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T7 P2

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T7 p2

T7 P2

Economic Analyses

Economic estimation

Economic Estimation

  • WAG = wild a… guess

  • SWAG = sophisticated WAG

  • WAGNER = WAG not easily refuted

Present worth analysis

Present Worth Analysis

“Lump sum” future costs

Annualized costs

Example pw analysis

Example - PW Analysis

A firm needs to expand its manufacturing capacity. The present facility could be expanded to meet the needs at a cost of $1.2 million. Waste treatment costs for the expanded facility would be about $184,000 per year. An entirely new facility that would reduce waste production could be built for approximately $3.35 million. The new facility would have an estimated annual waste treatment cost of $56,000. Assume a 20-year useful life for the facilities and a zero salvage value for both. If the prevailing interest rate is 10%, which alternative is preferable?

Benefit cost analysis

Benefit/Cost Analysis

B = benefits

C = costs

D = disbenefits or negative benefits

Example b c analysis

Example - B/C Analysis

Cost effectiveness analysis

Cost Effectiveness Analysis


  • Identify factors

  • Assign weights

  • Assign relative effectiveness score

  • Calculate effectiveness = (weighted sum of option) – (weighted sum of do-nothing option)

  • Plot cost vs. effectiveness

Example ce analysis

Example – CE Analysis

A manufacturing plant is faced with the loss of a hazardous waste disposal site. It is evaluating three strategies.

  • Ship waste to a distant site.

  • Construct major in-plant changes to reduce hazardous waste generation.

  • Rebuild the plant using a new process that does not generate hazardous waste.

Example continued

Example continued

Example continued1

Example continued

Payback period

Payback Period

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