The Table summarizes cervical-cancer treatment options and their health effectiv
ID: 1227887 • Letter: T
Question
The Table summarizes cervical-cancer treatment options and their health effectiveness. Find the best strategy for treating cervical cancer.
Strategy
Cost
Marginal Cost
Effectiveness
Marginal Effectiveness
CE Ratio
Nothing
$0
--
0 years
--
--
Simple
$5,000
$5,000
5 years
5 years
$1,000/yr
Complex
$50,000
$45,000
5.5 years
0.5 years
$90,000/yr
Strategy
Cost
Marginal Cost
Effectiveness
Marginal Effectiveness
CE Ratio
Nothing
$0
--
0 years
--
--
Simple
$5,000
$5,000
5 years
5 years
$1,000/yr
Complex
$50,000
$45,000
5.5 years
0.5 years
$90,000/yr
Explanation / Answer
Certainity Equivalent approach recognizes risk in capital budgeting analysis by adjusting estimated cash flows and employs risk free rate to discount the adjusted cash-flows. Under this approach, the expected cash flows of the project are converted to equivalent riskless amounts. The lower is the CE ratio, better the project is and vice-versa.
Accordingly, Simple Strategy is best for treating cervical cancer because the CE Ratio of Simple strategy is less than that of Complex Strategy.
Conclusion:- The best strategy for treating cervical cancer is Simple Strategy.
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