ECO 1192 Lecture 6: Topic 6 – Public Sector Decision Making
4 Oct 2017
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Summary: cba leads to the same conclusion on the acceptability of a project as npw, nfw, aew, *the ferry"s annual operating cost includes depreciation charges which are discussed in the next lecture. Conventional benefit-cost ratio (cbr: present worth (pw) criterion. Pw (project benefits) (pw of project costs pw of salvage value: future worth (fw) criterion. Fw (project benefits) (fw of project costs salvage value: annual equivalent (ae) criterion. Ae (project benefits) (ae of project costs aew of salvage value) Notes: projects costs include both the initial and the annual operating cost, a project"s positive salvage value (sv) offsets operating costs (and is added to operating costs is < sh) Modified benefit-cost ratio (mcbr) for information only: present worth (pw) criterion. Pw (benefits o+m expenses) (pw of initial cost pw of salvage value) O+m = operating and maintenance: future worth criterion. Fw (benefits o+m expenses) (fw of initial cost fw of salvage value: annual equivalent (ae) criterion.
