4. Consider two alternative transportation projects for the KW area to improve p

Question

4. Consider two alternative transportation projects for the KW area to improve public transportation and reduce congestion– an expanded bus system and a light rail transit system. The local government has specified that the cost-benefit analysis should be conducted given a project life of 20 years. The consultants who undertook the project did not include a horizon value for either of the two alternatives. You have been hired as an independent consultant and have been asked to provide a short assessment of how this omission may influence the results of the CBA analysis. Be sure to include in your report a basic definition of horizon value.

Explanation / Answer

Horizon value involves considering costs and benefits at arising during beginning and then also considering costs and benefits occurring in future of a project. I. E in horizon of the project.

It may influence the results of CBA analysis by selecting a project which though is preferred on the basis of present value of costs and benefits but may not be feasible considering the costs and benefits occurring in future. E. G Future net benefits of a road may be greater than estimated by simple present value method.

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