Cost Benefit Analysis

720 words - 3 pages

“Cost-Benefit Analysis” (e-Activity part I-IV)

Scenario; support the reasons for recommending and accepting the financial implications of Project A over the superiors choice for Project B.

After reviewing all the information in the e-Activity on the process of capital budgeting it is important to remember the stipulation of the critical acceptance level of 2.75 years and the Internal Rate of Return is set at 12% when making the decision.

Project “A”
Project “B”
Payback Period (PP) = 1.89 years
Payback Period (PP) = 3.75 years
Internal Rate of Return (IRR) = 26.72%
Internal Rate of Return (IRR) = 19.74%
Net Present Value (NPV) ...view middle of the document...

Whether this is an independent project or mutually exclusive, I would try and promote Project “A” on the grounds of the quick return of the $200,000 verses the long return of the $400,000. This capital may be use for near future needs or projects research & development.

Ex ante

Advantage: The ex ante analysis are that it give the company or organization an idea of what the impact of a program will be once implemented. This can help weigh out the cost over the benefits of choosing the program over another alternative. An example is President Obama’s recent lifting of federal oil drilling regulations. It gave then an idea of the cost (environmental impact) over the benefits (jobs and energy). A pro to support ex ante analysis is that it properly accounts for the risks.
Disadvantages: The ex ante analysis requires information that the organization may not have available. This means that large setbacks can occur with limited or inadequate data. Perhaps a good example is our Social Security System. When the program was introduced the expected life span of our citizens was much shorter. Has analysts been able to...

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