Chapter 10 Evaluating Projects with the Benefit-Cost Ratio Method - PowerPoint PPT Presentation

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Chapter 10 Evaluating Projects with the Benefit-Cost Ratio Method

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Chapter 10 Evaluating Projects with the Benefit-Cost Ratio Method
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Chapter 10 Evaluating Projects with the Benefit-Cost Ratio Method

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    1. Chapter 10 Evaluating Projects with the Benefit-Cost Ratio Method

    2. More complicated due to the following factors: Overall purpose of investment Viewpoint for analysis Selection of interest rate Financing sources of project Expected project duration Qualifying and valuing benefits and dis-benefits Effects of politics Beneficiaries of investment Multipurpose nature of investments Characteristics of Economic Analysis in the Public Sector

    3. To promote the general welfare (Preamble of Constitution) Conflict of interests Conflict in opinions To ensure the potential benefits exceed overall costs (Flood Control Act of 1936) Investment Objectives of Public Projects

    4. To take a viewpoint at least as broad as those who pay the costs and those who receive the benefits Be consistent Viewpoint for Analysis in Public Projects

    5. No time-value-of-money concept Cost of capital concept Municipal bonds are exempt from federal taxes General obligation municipal bonds Revenue bonds Opportunity cost concept Government opportunity cost 7% set by Office of Management and Budget (OMB) A94 directive Selecting an Interest Rate for Public Projects

    6. Benefit-Cost Ratio Analysis