Chapter - 5 - Benefit Cost Ratio Method Lecture Slide

Chapter 5 : Evaluating Projects with the BenefitCost Ratio Method
Refer Chapter 10 (Sullivans Book)
The
objective this chapter is to

demonstrate the use of the
benefit-cost ratio for the
evaluation of public projects.
Engineering Economy, Fifteenth Edition

By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
Copyright 2012 by Pearson Education, Inc.

Upper Saddle River, New Jersey 07458
All rights reserved.
PROJECT EVALUATION METHOD

1.Introduction
2.Project Selection
3.The Benefit-Cost Ratio Method
i. Conventional BC Ratio with PW
ii.Modified BC Ratio with PW
iii. Conventional BC Ratio with AW
iv. Modified BC Ratio with AW


Frequently much larger than private ventures

They may have multiple, varied purposes that
sometimes conflict
Often very long project lives
Capital source is ultimately tax payers
Decisions made are often politically influenced
Benefits are often nonmonetary and are
difficult to measure
more...




Owned, used and financed by citizens of

government units. Some examples are:
Highways
Universities
Hospitals
Sports arenas
Prisons
Public housing
Emergency relief
Utilities
Public projects provide service to citizenry at no
profit
Partnerships of public entities and private
enterprise are more prevalent now as
funding for large public projects becomes
more difficult
2008, McGraw-Hill Copyright 2012 by Pearson Education, Inc.

All rights reserved
7All rights reserved.6
Size: Usually large compared to private projects

with
years
initial investment distributed over several
Life: Long-lived (often 30-50+ years); capitalized

cost
method is useful with A = Pi estimating
annual costs
Cash flows: No profits allowed; estimates are in
form
of costs paid by government unit,
benefits to the citizenry (can include revenues or
savings), and disbenefits (descriptions on later
slide)
Copyright
2012
by Pearson
Education,
Inc.
Slide
to accompany
Blank
and
Upper
Saddle
River,
New
Jersey
07458
2008, McGraw-Hill Tarquin Basics of Engineering
All rights reserved Economy, 2008
Funding: Public projects use taxes, fees, bonds
Interest rate: Called discount rate, it is
Alternative selection: Politics and special interest
(and
gifts) for funding; taxes and fees are
collected from users of project services; funding
examples are
federal/state taxes of various
sorts, tolls, surcharge
fees.
considerably
lower than for private projects
since no profit is
considered and governments
are exempt from
taxes; typical rates in the 3
to 6% per year range
groups make selection more complex for public
projects; B/C method developed to put more
objectivity into the analysis process
Copyright
2012
by Pearson
Education,
Inc.
Slide
to accompany
Blank
and
Upper
Saddle
River,
New
Jersey
07458
Analysis requires estimates as accurate as possible

for costs, benefits, and disbenefits
Description
Costs: expenditures to the
government to build,
maintain, & operate
project; salvage/sales
value possible
Benefits: advantages to
public; income and
savings

Example
Bridge construction cost
Annual cost of drug abusers
treatment program
New jobs and salary money

Reduced property taxes
Lower transportation costs
due to less gas used
Copyright
2012
by Pearson
Education,
Inc.
Slide
to accompany
Blank
and
Upper
Saddle
River,
New
Jersey
07458
Disbenefits: expected undesirable, negative

consequences of project to owners the public;
usually these are economic disadvantages estimable
in monetary units
Disbenefits are not always included in the analysis;
subject to political and special interest
argumentation

Copyright
2012
by Pearson
Education,
Inc.
Slide
to accompany
Blank
and
Upper
Saddle
River,
New
Jersey
07458
7All rights reserved.
10
Determine viewpoint (perspective) before costs,

benefits, and disbenefits are estimated
Choose one and maintain it throughout estimation
and analysis. Sample viewpoints
Citizen
Tax base
Creation/retention of jobs
Economic development
Specific industry

Copyright
2012
by Pearson
Education,
Inc.
Slide
to accompany
Blank
and
Upper
Saddle
River,
New
Jersey
07458
11
Traditional Construction Contract

Government funding via taxes, user fees and bonds
Constructed through fixed price or cost plus contract
with a profit margin specified for contractor
Owned and operated by government unit
CONTRACTOR SHARES NO RISK ON FINANCING OR
OPERATION

Copyright
2012
by Pearson
Education,
Inc.
Slide
to accompany
Blank
and
Upper
Saddle
River,
New
Jersey
07458
12
Public-Private Partnership
Often called BOT (Build-Operate-Transfer) contract

Contractor partially or completely responsible for
financial arrangements
Contractor operates and maintains system for
specified time period. Contract includes these funds
Ownership transferred to government in future. This stage
is often negotiated in different ways
Profit margin is specified for contractor during time of
involvement

Copyright
2012
by Pearson
Education,
Inc.
Slide
to accompany
Blank
and
Upper
Saddle
River,
New
Jersey
07458
13
Public-Private Partnership
CONTRACTOR SHARES RISK ON FINANCING AND

OPERATION
Examples:
Design, finance construct operate nuclear power plant for 15
years
Recondition and operate state hospital for mental health
patients
Organize and operate a municipal security (police) force for a
20-year period; contract renewable each 5 years

Copyright
2012
by Pearson
Education,
Inc.
Slide
to accompany
Blank
and
Upper
Saddle
River,
New
Jersey
07458
14
For government projects, the owners are

ultimately the taxpayers.
Project Benefits are favorable
consequences of the project to the public
(owners).
Project Costs represent monetary
disbursements required of the government.
Disbenefits represent negative
consequences of a project to the public
(owners).




The consideration of the time value of

money means this is really a ratio of
discounted benefits to discounted costs.
B-C ratio is the ratio of the equivalent
worth of benefits to the equivalent worth
of costs.
. Conventional BC Ratio with PW
Modified BC Ratio with PW
Conventional BC Ratio with AW
Modified BC Ratio with AW


B = Benefit
I =Investment = CR (kos tambahan modal)
MV = F= Market Value at the end of useful life
(nilai sisa)
O & M = Operation & Maintenance
CR = Capital Recovery Amount
(kos pemulihan modal, allowance,
salvage value)


Conventional B-C ratio with PW ..darab dengan (P/A,

i, n) kecuali I
Modified B-C ratio with PW ..darab dengan (P/A, i, n)

kecuali I
A project is acceptable when the B-C ratio is

greater than or equal to one.

Conventional B-C ratio with AW ..hanya I=CR shj

perlu darab dgn (A/P, i, n)
Modified B-C ratio with AW .. hanya I=CR shj perlu

darab dgn (A/P, i, n)


Guideline for economic justification

If B/C 1.0
If B/C < 1.0
accept project
project not acceptable






Kerajaan negeri Johor telah bercadang untuk melebarkan dan

menambah lagi landasan di lapangan terbang Senai bagi
membolehkan lebih banyak kapal terbang menggunakan kemudahan
di lapangan terbang tersebut. Pembesaran landasan memerlukan
tanah baru bernilai RM450 000. Kos pembinaan untuk landasan
tersebut dijangka bernilai RM750 000 dan kos senggaraan tahunan
ialah RM 30 000 setahun. Bagi menyokong operasi, sebuah terminal
kecil perlu dibina dengan kos permulaan RM80 000. Dua orang
pengawal trafik udara diperlukan dengan kos tahunan ialah RM100
000 setahun bagi mengawal trafik yang semakin bertambah. Faedah
tahunan yang diperoleh akibat pembesaran landasan ini
disenaraikan dalam jadual berikut:


Maklumat
Nilai setahun
(RM)
Sewa ruang kpd syarikat penerbangan
325 000
Cukai lapangan terbang yg dikenakan kpd penumpang
65 000
Faedah yg dinikmati penduduk sekitar
50 000
Peningkatan pendapatan penduduk selaras dgn bertambahnya

kedatangan pelancong
50 000
JUMLAH FAEDAH 490 000
Dengan andaian landasan terbang dpt bertahan selama 30thn dan

kadar faedah 10% setahun, buat penilaian cadangan tersebut dgn
menggunakan kaedah nisbah B/C konvensional dan nisbah B/C
terubahsuai pada nilai kesetaraan PW dan AW.


UTM bercadang untuk melabur sebanyak RM1.5 Juta untuk

menampung satu penyelidikan tentang kaedah baru pengajaran.
Projek yg mempunyai jangkahayat 15 tahun tersebut dapat
menjimatkan kos gaji, yuran pelajar dan lain-lain bayaran universiti
bernilai RM500 000. Universiti menggunakan kadar pulangan 6%
setahun terhadap pelaburan yang dijalankan. Projek tersebut
memerlukan kos operasi sebanyak RM50 000 setahun. Oleh kerana
aktiviti kajian dilakukan dlm masa yg sama dgn penyelidikan yg lain,
sebanyak RM200 000 telah dikurangkan drp aktiviti kajian
penyelidikan yg lain. Guna analisis faedah-kos berikut utk menilai
kewajaran program pembiayaan ini dlm masa 15 tahun:
(a) Nisbah B/C konvensional
(b) Nisbah B/C Terubahsuai
(c) Nilai bersih faedah kos (B-C)

Kerajaan Tempatan Utara-Selatan sedang mempertimbangkan dua

jenis laluan (iaitu Laluan U dan Laluan S) yang saling menyingkari
bagi kemudahan penduduk setempat. Laluan U menghala ke Utara
akan dibina 5km drp pusat Bandar dan melibatkan jarak perjalanan
yg agak jauh bagi pengguna commuter. Manakala Laluan S
menghala ke Selatan akan dibina melalui kawasan Bandar dengan
kos pembinaan lebih tinggi. Walaubagaimanapun Laluan S dapat
mengurangkan jarak dan masa perjalanan pengguna komuter.
Andaikan kos untuk kedua-dua laluan adalah spt berikut :
Butiran
Laluan U
Kos permulaan, RM
10,000,000
Kos senggaraan, RM setahun 35,000
Kos pengguna, RM setahun
450,000
Laluan S
15,000,000
55,000
200,000
Jika setiap laluan mempunyai jangkahayat 30tahun, kadar faedah

5% setahun dan tiada nilai sisa, tentukan laluan yg akan dipilih
menggunakan nisbah B/C tambahan.




Chapter - 5 - Benefit Cost Ratio Method Lecture Slide

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Chapter - 5 - Benefit Cost Ratio Method Lecture Slide

Загружено:

Авторское право:

Доступные форматы

Chapter 5 : Evaluating Projects with the BenefitCost Ratio Method

Refer Chapter 10 (Sullivans Book)

objective this chapter is to

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

PROJECT EVALUATION METHOD

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Frequently much larger than private ventures

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Owned, used and financed by citizens of

2008, McGraw-Hill Copyright 2012 by Pearson Education, Inc.

Size: Usually large compared to private projects

initial investment distributed over several

Life: Long-lived (often 30-50+ years); capitalized

Cash flows: No profits allowed; estimates are in

Funding: Public projects use taxes, fees, bonds

Interest rate: Called discount rate, it is

Alternative selection: Politics and special interest

Analysis requires estimates as accurate as possible

Engineering Economy, Fifteenth Edition

New jobs and salary money

Disbenefits: expected undesirable, negative

Engineering Economy, Fifteenth Edition

Determine viewpoint (perspective) before costs,

Engineering Economy, Fifteenth Edition

Traditional Construction Contract

Engineering Economy, Fifteenth Edition

Often called BOT (Build-Operate-Transfer) contract

Engineering Economy, Fifteenth Edition

CONTRACTOR SHARES RISK ON FINANCING AND

Engineering Economy, Fifteenth Edition

For government projects, the owners are

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

The consideration of the time value of

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Conventional B-C ratio with PW ..darab dengan (P/A,

Modified B-C ratio with PW ..darab dengan (P/A, i, n)

A project is acceptable when the B-C ratio is

Copyright 2012 by Pearson Education, Inc.

Conventional B-C ratio with AW ..hanya I=CR shj

Modified B-C ratio with AW .. hanya I=CR shj perlu

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Guideline for economic justification

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.

Kerajaan negeri Johor telah bercadang untuk melebarkan dan

Engineering Economy, Fifteenth Edition

Copyright 2012 by Pearson Education, Inc.