evecon3 - Kelley Benham AEC 3233 Homework 3 A cost-benefit...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Kelley Benham AEC 3233 Homework 3 A cost-benefit analysis is used to see if a project is worth doing. In general, if the benefits out weight the cost, then it is a good project. With the projections I have collected the project is worth doing. The first nine years no money will be earned, and a lot will be invested in this project. However, beginning in year ten, the benefits will out weight the costs. At the end of twenty years, the project will have made a small profit. My figures are given in Table 1. If the benefits change, it will throw the entire analysis off. My employee has collected three numbers that may be the annual benefit. The first number is used to calculate Table 1. Tables 2 and 3 show how the benefits may change. If the benefits are those seen in Table 2, I would suggest to not go ahead with the project. I calculated the probability of getting each payout. The probability of getting a payout of $412,000 is 40%. For a payout of $200,000, the probability is 53%. Finally, for a payout of $676,015 the probability is 7%. Using these numbers, I have calculated the expected annual benefits. This is shown in Table 4. Using this method, I would suggest to not go ahead with this project. If the discount rate changes, it makes a big impact of the totals as seen in Table 5 where we changed the discount rate to 5%. This greatly decreases the net present value and the project should not be done.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Kelley Benham AEC 3233 Homework 3 If the project is extended from ten years to twenty, the net present value increases. This is shown in Table 6. With the expected payout, the project will loose money. Using this shows that the project is very risky and I would suggest not to do the project. Discount Rate
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This homework help was uploaded on 04/18/2008 for the course AEC 3233 taught by Professor Petrolia during the Spring '08 term at Mississippi State.

Page1 / 10

evecon3 - Kelley Benham AEC 3233 Homework 3 A cost-benefit...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online