You have been asked to evaluate a flu immunization program for children from low

Question

You have been asked to evaluate a flu immunization program for children from low income households. The program will cost $5,250 to set up initially. At the end of each of the next five years, the additional costs and the benefits will be as shown below: (a) Calculate (using the present value) the net benefits and the benefit cost ratio assuming the appropriate discount rate is 6 percent. (b) Calculate (using the present value) the net benefits and the benefit cost ratio assuming the appropriate discount rate is 18 percent.

Explanation / Answer

Benefit cost ratio = 1.22 in case 1 and 0.98 in case 2.

Year 0 1 2 3 4 5 Cost 5250 4000 3000 2000 1000 0 Benefit 0 2000 4000 5000 5000 5000 Net Benefit -5250 -2000 1000 3000 4000 5000 Cost NPV 5250 3774 2670 1679 792 0 14165 Benefit NPV 0 1887 3560 4198 3960 3736 17342 Net NPV -5250 -1887 890 2519 3168 3736 3177 Interest 0.06 Year 0 1 2 3 4 5 Cost 5250 4000 3000 2000 1000 0 Benefit 0 2000 4000 5000 5000 5000 Net Benefit -5250 -2000 1000 3000 4000 5000 Cost NPV 5250 3390 2155 1217 516 0 12527 Benefit NPV 0 1695 2873 3043 2579 2186 12375 Net NPV -5250 -1695 718 1826 2063 2186 -152 Interest 0.18

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