Chapter 11 B-C ratios

Chapter 11 B-C - Evaluating Projects with the Benefit/Cost Ratio Method The B/C method gives a ratio of discounted benefits to discounted costs

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1 Evaluating Projects with the Benefit/Cost Ratio Method The B/C method gives a ratio of discounted benefits to discounted costs. Another method to use to evaluate whether an alternative is economically attractive. The B/C Ratio Method is used most commonly to evaluate public projects. What is a public project? Authorized, financed, and operated by federal, state, or local governmental agencies.
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2 Differences Between Public and Private Projects: Purpose Source of capital; method of financing Project life Nature of “benefits” Beneficiaries Effect of politics, conflict of purposes, conflict of interests Measure of efficiency Described in Table 11-1
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3 Terminology Owners - in most cases are the taxpayers not the government Benefits - the favorable consequences of the project to the public Costs - monetary disbursements required of the government Disbenefits - the negative consequences of a project to the public Multi-purpose - most public projects have multiple purposes or objectives. Ex. Project is “Building a dam to create a reservoir on a river”; purposes might include flood control, irrigation, electric power, recreation, and drinking water
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Example: The PA Project is a joint effort between Penn Dot, the Port Authority of Allegheny County, the Federal Railroad Administration (FRA), and MAGLEV, Inc. (a consortium of private and public organizations) as well as other related partners. The aim is to build a 54-mile high speed magnetically levitated train system to allow travel between the Pittsburgh Airport, Downtown, Monroeville, and Greensburg in 35 minutes. The project has been ongoing for over 10 years and public hearings on the Draft Environmental Impact Statement (DEIS) concluded in December, 2005. The Final Environmental Impact Statement is expected to be submitted at the end of this year. Once it is approved, the partners will seek approval to move forward to the final design phase. Future progress depends highly on the availability of funding from the Federal Government. What are some of the benefits, costs, and disbenefits associated with this project? Benefits:
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This note was uploaded on 04/17/2008 for the course IE 1036 taught by Professor Karenbursic during the Fall '06 term at Pittsburgh.

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Chapter 11 B-C - Evaluating Projects with the Benefit/Cost Ratio Method The B/C method gives a ratio of discounted benefits to discounted costs

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