Problem 4. (6 points). We\'ll discuss cost-benefit analysis (CBA) in class on Tu

Question

Problem 4. (6 points). We'll discuss cost-benefit analysis (CBA) in class on Tuesday. CBA is a method that calculates and compares project costs and benefits to society [over a period of time]. The CBA monetizes all project inputs and outputs. In other words, the CBA converts the inputs and the outputs into a monetary value. The CBA helps decision-makers to rank and prioritize various project alternatives, including the "no build" alternative. When performing CBA, the analyst enumerates all projects costs and benefits to society. In the next step, they assign

Explanation / Answer

step 1:

Given data:

step 2:

Calculation of B/C for all the 4 alternatives:

For Alternative 1:

B=$13000000

C=$16000000

B/C=13000000/16000000

B/C=0.8125

For Alternative 2:

B=$15000000

C=$18000000

B/C=15000000/18000000

B/C=0.8333

For Alternative 3:

B=$11000000

C=$8000000

B/C=11000000/8000000

B/C=1.375

For Alternative 4:

B=$13000000

C=$16000000

B/C=17000000/12000000

B/C=1.41

Step 3:

If the B/C ratio is >1, then do not consider those alternatives , so Alternative 1 and Alternative 2 are more feasible

than alternative 3 and 4

Step 4: Calculation of net B/C value:

New Roadway improvement project:

Let us assume in it a phased manner:

(1) Contract phase

(2) Planning phase

(3) Execution phase

(i) Material supply and availability

(ii) Machinery and men availability

All of the above phases will have definitely more than one alternative,

In the first phase the contract is given to the contractor who quotes correct amount of bid, thus increasing of the benefits

In the second phase the detailed estimate is prepared for each and every section and the quotes are finalized

In the execution phase, the cheapest machinery and workers are selected so that a lot of benefit is gained from the project.

Alternative 1 Alternative 2 Alternative 3 Alternative 4 Benifits B $13000000 $15000000 $11000000 $17000000 Costs C $16000000 $18000000 $8000000 $12000000

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