1 / 11

T7 P2

T7 P2. Economic Analyses. Economic Estimation. WAG = wild a… guess SWAG = sophisticated WAG WAGNER = WAG not easily refuted. Present Worth Analysis. “Lump sum” future costs Annualized costs. Example - PW Analysis.

addison-giles
Download Presentation

T7 P2

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. T7 P2 Economic Analyses

  2. Economic Estimation • WAG = wild a… guess • SWAG = sophisticated WAG • WAGNER = WAG not easily refuted

  3. Present Worth Analysis “Lump sum” future costs Annualized costs

  4. Example - PW Analysis A firm needs to expand its manufacturing capacity. The present facility could be expanded to meet the needs at a cost of $1.2 million. Waste treatment costs for the expanded facility would be about $184,000 per year. An entirely new facility that would reduce waste production could be built for approximately $3.35 million. The new facility would have an estimated annual waste treatment cost of $56,000. Assume a 20-year useful life for the facilities and a zero salvage value for both. If the prevailing interest rate is 10%, which alternative is preferable?

  5. Benefit/Cost Analysis B = benefits C = costs D = disbenefits or negative benefits

  6. Example - B/C Analysis

  7. Cost Effectiveness Analysis Method: • Identify factors • Assign weights • Assign relative effectiveness score • Calculate effectiveness = (weighted sum of option) – (weighted sum of do-nothing option) • Plot cost vs. effectiveness

  8. Example – CE Analysis A manufacturing plant is faced with the loss of a hazardous waste disposal site. It is evaluating three strategies. • Ship waste to a distant site. • Construct major in-plant changes to reduce hazardous waste generation. • Rebuild the plant using a new process that does not generate hazardous waste.

  9. Example continued

  10. Example continued

  11. Payback Period

More Related