CBA Exam 3 - 1Methods of Cost-Benefit Analysis Professor...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1Methods of Cost-Benefit Analysis, Professor Russell Answers to Quiz, October 13, 2011 1. (25 points) Write out the formula for net discounted benefits and define each term in it. The formula for net discounted benefits (or net present value) is where B t is the benefit in year t, C t is the cost in year t, t denotes the year, r is the discount rate, and T is the number of years covered by the project (the time horizon). 2. (25 points) Suppose the net discounted benefits of a project are positive but close to zero in the base-case analysis, which used a real discount rate of 7%. How confident would you be of recommending the project? What could you do to explore whether you should be confident or cautious? If the net discounted benefits are close to zero that suggests that fairly small changes in the base-case parameters, such as the discount rate, might make net benefits negative, so I would not be confident. If the real world turned out to be
Image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern