Cost Benefit Analysis As economists, we are usually called in when the project is already designed.

C-B Analysis should be mandatory for bigger projects Since costs and benefits to the society at large are often different from the costs and revenues of an enterprise, a farm development project, the establishment of an agro-industry factory – economists have an important role in the design phase Most of you will probably be working with smaller projects – still a C/B analysis can be useful.

Three analytical steps 1.Cash Flow Analysis 2.Economic Analysis – sensitivity analysis 3.Financial Analysis

Cash Flow Analysis Out1234…t Investments Working capital Replacements Recurrent costs Maintenance TOTAL OUT

IN123…t Revenues Residual valuex TOTAL IN TOTAL OUT NET CASH FLOW

So we have got the NCF; what next?

Terms used NPV Net present value Cost Benefit Ratio B/C, or B*/C* IRR Internal Rate of Return The mathematics and Excel.