Podcast
Questions and Answers
What is the primary purpose of conducting a cost-benefit analysis?
What is the primary purpose of conducting a cost-benefit analysis?
- To determine if the benefits of an investment outweigh its costs (correct)
- To assess the historical performance of similar projects
- To identify all possible costs regardless of relevance
- To analyze the market trends unrelated to the investment
Which of the following steps is NOT part of the cost-benefit analysis process?
Which of the following steps is NOT part of the cost-benefit analysis process?
- Identify alternatives
- Define the problem
- Choose the best alternative
- Calculate profits (correct)
In the context of cost-benefit analysis, which of the following is considered a non-financial cost?
In the context of cost-benefit analysis, which of the following is considered a non-financial cost?
- The depreciation of equipment (correct)
- Interest on loans taken for the project
- Sales tax on equipment purchases
- Revenue generated from the project
What does the choice of system entail in the cost-benefit analysis process?
What does the choice of system entail in the cost-benefit analysis process?
Which of the following best describes opportunity costs in cost-benefit analysis?
Which of the following best describes opportunity costs in cost-benefit analysis?
What must be done during the evaluation of costs and benefits?
What must be done during the evaluation of costs and benefits?
Which of the following is an example of an intangible benefit?
Which of the following is an example of an intangible benefit?
Why is identifying costs and benefits crucial in the first step of cost-benefit analysis?
Why is identifying costs and benefits crucial in the first step of cost-benefit analysis?
Flashcards
Cost-Benefit Analysis (CBA)
Cost-Benefit Analysis (CBA)
A method used to evaluate the advantages and disadvantages of a project, investment, or policy by comparing its costs and benefits.
CBA Purposes
CBA Purposes
To determine if an investment is feasible and beneficial (justification), and to compare different options (evaluation).
CBA Process - Identification
CBA Process - Identification
The first step in CBA is listing all the costs and benefits connected to the project or task.
CBA Process - Evaluation
CBA Process - Evaluation
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CBA - Choosing the system
CBA - Choosing the system
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Cost Examples in CBA
Cost Examples in CBA
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Benefit Examples in CBA
Benefit Examples in CBA
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CBA Steps - Define the problem
CBA Steps - Define the problem
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Study Notes
Cost-Benefit Analysis (CBA)
- A method to evaluate projects, investments, or policies by comparing costs and benefits in monetary terms.
- Two main purposes:
- Determine if an investment is sound (justification/feasibility) by comparing benefits to costs.
- Compare projects by comparing costs and benefits of each option.
Process of CBA
- Identification of Costs and Benefits: Listing all associated costs and advantages.
- Evaluation of Costs and Benefits:
- Costs: tangible, intangible, fixed, variable, others.
- Benefits: revenue, savings, tangible, intangible, others.
- Choice of System: Selecting the option with lowest cost and highest benefits.
Steps in the CBA Process
- Define the Problem: Understanding project objectives and goals.
- Identify Alternatives: Considering different solutions and their potential impacts.
- Calculate Costs and Benefits: Estimating both financial and non-financial costs and benefits of each alternative.
- Non-financial Costs Examples: Depreciation, unpaid labor, opportunity costs (value of next best alternative), off-site costs (e.g., soil degradation), environmental or sociocultural costs (e.g., monocropping impact)
- Choose the Best Alternative: Selecting the option with the lowest cost/highest benefits, or balancing the two goals.
- Evaluate Benefits and Costs: Assessing how well the chosen option meets its goals and its associated costs.
Example: Mango Farm
- A mango farm experiencing post-harvest losses plans to decide on whether to invest in a cold storage facility or continue with traditional storage methods.
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