Incremental Benefit Cost Analysis Incremental Benefit Cost Analysis ExampleExample

Incremental Benefit Cost Analysis Incremental Benefit Cost Analysis ExampleExampleA B C D E F G

Benefits 174 180 136 80 136 178 89

Disbenefits 4 60 10 8 10 2 14

Costs 100 120 90 80 70 110 50

B – D

C

1.7 1.0 1.4 0.9 1.8 1.6 1.5

No

t Feasib

leCost Order: G E C A F B

E – G:

G – DN:

C – E:

A – E:

(136 – 89) – (10 – 14) = 51 = 2.55

(70 – 50) 20Upgrade to E

(136 – 136) – (10 – 10) = 0 = 0

(90 – 70) 20

Keep Proj. E

(174 – 136) – (4 – 10) = 44 = 1.47

(100 – 70) 30

Upgrade to A

(From feasibility, (B – D) / C = 1.5 Upgrade to G

Incremental Benefit Cost Analysis Incremental Benefit Cost Analysis ExampleExample

Incremental Benefit Cost Analysis Incremental Benefit Cost Analysis ExampleExampleA B C D E F G

Benefits 174 180 136 80 136 178 89

Disbenefits 4 60 10 8 10 2 14

Costs 100 120 90 80 70 110 50

B – D

C

1.7 1.0 1.4 0.9 1.8 1.6 1.5

No

t Feasib

leCost Order: G E C A F B

F – A:

B – A:

(178 – 174) – (2 – 4) = 6 = 0.6

(110 – 100) 10Keep Proj. A

(180 – 174) – (60 – 4) = – 50 = – 2.5

(120 – 100) 20

Best is Proj A

Bonus Problem: B/C Build-Up Bonus Problem: B/C Build-Up ExampleExample

Bonus Problem: B/C Build-Up Bonus Problem: B/C Build-Up ExampleExample Snack Fridge Viability

Data:110 IE & EngM students48% will use snack fridge instead of

going homeUsers average (2) drinks & (1) snack

each weekMark-up is 10%, drink price is $.50,

snacks $.75School year averages 32 weeksFridge costs $495, lasts 8 yrs, 8% cpd

annually

If they save time & $$ on snacks & drinks, they can buy books , study more, and expect one of them to win a $5 500 national scholarship every 4 years. But the vending company will quit donating $300 per year to their Tech Society

Perform a B/C analysis – IE student perspective