# ADM 616 Topic 7 – Cost Benefit Analysis Worksheet

ADM 616 Topic 7 – Cost Benefit Analysis Worksheet

ADM 616 Topic 7 – Cost Benefit Analysis Worksheet

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ADM 616 Topic 7 – Cost Benefit Analysis Worksheet

Question one

Business or financial managers use cost analysis to look at the strengths and weaknesses of their business and explore alternatives so that they can determine the best ways to maximize profits and save money in the process. This method can be used, not only nut, the group to determine any investments they may have to invest.

Among the required and recommended CBA measures are;

(1). Establish an outline, objectives, etc.

(2). Find out what the cost benefits should be seen.

(3). Identify and classify cost benefits.

(4). Guessing the cost and lifetime benefits of the program.

Question 2

Garbage Truck CBA
Computation of Net Present Value

Years

Cash Flows PV Factor @ 7%
Present Value

0 \$(400,000) 1.0000 \$ (400,000)
1 \$ 92,700 0.9346 \$ 86,636
2 \$ 95,481 0.8734 \$ 83,397
3 \$ 98,345 0.8163 \$ 80,279
4 \$ 201,296 0.7629 \$ 153,568

Total Cash Flows \$ 87,822 NPV \$ 3,879
IRR 7.38%

\$100,000is the fourth year salvage value
\$90,000 is the annual saving in year 0
Annual savings at the end of year 1 is (\$90,000 x 103%)
= \$92,700 where each year the cash flows are accounted for inflation.

Question Three

Alternate Lender 1
Computation of Net Present Value

Years

Cash Flows PV Factor @ 7.5%
Present Value

0 \$(400,000) 1.0000 \$ (400,000)
1 \$ 93,600 0.9302 \$ 87,070
2 \$ 97,344 0.8653 \$ 84,235
3 \$ 101,238 0.8050 \$ 81,492
4 \$ 205,287 0.7488 \$ 153,719

Total Cash Flows \$ 97,469 NPV \$ 6,516
IRR 8.14%

\$100,000 as salvage value
Inflation Rate is 4%

(\$90,000 x 104%) =\$92,700 as year 1 saving when inflation is accounted

Alternate Lender 2
Computation of Net Present Value

Years

Cash Flows

PV Factor @ 6.5%
Present Value

0 \$(400,000) 1.0000 \$ (400,000)
1 \$ 90,900 0.9390 \$ 85,352
2 \$ 91,809 0.8817 \$ 80,944
3 \$ 92,727 0.8278 \$ 76,764
4 \$ 193,654 0.7773 \$ 150,532

Total Cash Flows \$ 69,090 NPV \$ (6,408)
IRR 5.88%

\$100,000 as fourth year salvage value
Inflation Rate is 1%

(\$90,000 x 101%) = \$90,900 as annual saving when inflation is accounted

Life Cycle Costing
Life Cycle Costing (LCC) is an important economic study that explores alternatives to current and future cost planning. The LCC incorporates cost overruns while examining revenue trends over several years. Other issues surrounding LCCs, in terms of government, LCCs are often not considered a sustainable part of public procurement; LCCs often lead to overpayment, causing conflicts between revenue and capital budgets, inefficiencies, and inadequate resources.

Question 1

Discount Rate 4%

Ergolight

Conventiona l
Purchase Price \$500,000 \$100,000
Energy cost per Year \$20,000 \$50,000
Maintenance cost per year \$2,000 \$10,000

\$271,806.5
3

\$679,516.32

\$27,180.65

\$135,903.26

Life Cycle Cost \$798,987.1 \$915,419.58

8

Question 2

According to the LCC, the Ergolight System is cheaper in the lifetime of the system and should be purchased even though it costs \$ 400,000 more in advance. This is also a good example of why LCCs create conflict in government. It is possible that no municipality could choose this option as it has cost a lot of money in the past.

Module 19: Capitalization And Depreciation
Question 1

Most government agencies do not consider long-term use or value and manage current or short-term assets. Generally, government agencies are tax-exempt and operate without strict tax laws as in the private sector. These agencies classify purchases as a cost rather than assessing the decline of the year

Question 2

(\$120,000 – \$20,000)/20 = \$5000 per year.

Question 3

Groups, including government agencies, do not invest in all of their assets lasting more than one budget but instead see that those assets are deducted from the cost of revenue.This is because there are tax-related savings due to additional costs. The real question is whether this ethical and ethical practice as assets used in accounting for the long term should be regarded as long-term assets.

Question 4

The cost of the goods can be included with travel expenses of up to \$ 550,000 because those costs include bringing the goods to practical working conditions. Training costs will be allocated in the income statement as income expenses.

Module 20: Long-Term Financing
Question 1

Construction projects and similar infrastructure projects took place several years after completion. Therefore, it usually takes a lot of money to do these jobs. Government agencies use municipal bonds as a means of obtaining long-term loans that meet the needs of their profession. Bonds are usually long-term, tax-free ways to earn a lot of money.

Question 2

Total interest paid for a period of 40 years
Total value of bonds \$100 Million
Interest rate 5.88
%

Annually
Interest rate 2.94
%

Semiannually

Total interest paid -71.31

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