Cost-benefit analysis is a technique that assumes all costs and benefits can hav
ID: 2693043 • Letter: C
Question
Cost-benefit analysis is a technique that assumes all costs and benefits can have a dollar value attached to them. It is a tool and should not be used as the sole basis for decision making. The result of a calculation is a ratio between costs and benefits. After all other calculations have been made the analysis needs to conclude with the calculation the ratio between costs and benefits. If in the ratio costs exceed benefits the project advice is to not accept the project and to consider accepting the project if benefits exceed costs. Consider the following example from the fictitious Swobodaville to build a Community Windmill Renewable Energy Project. The following has been agreed upon: 1. Land is already owned. The price of a new windmill is $150,000. A minimum of fifty windmills are needed to achieve desired efficiency compared to the current coal burning method. 2. Staff training costs over three years when considering direct costs including loss of productive hours while in training will be $55,000 for each of the ten specialists to be hired. 3. The annual operating and maintenance costs of the machine in the three-year period will be $35,000 per windmill. 4. The cost of shutting down a portion of the coal plant to achieve the same energy production as the windmills is $1,000,000. 5. There will be a decrease in staff productivity compared to coal burning operations. It was calculated on the average hourly rate of the ten specialized staff of $55 and the number of hours added over the three year-period, 450. Three current coal plant workers who will lose their jobs is three at a wage of $35 per hour. 6. As a widely supported community project with an investment in every aspect of the communityExplanation / Answer
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