gasoline and car operation costs of $8,000 yearly. In contrast to physical efficiency, economic efficiency can exceed unity, and in fact should, if … 2)PW or EAW have no clear cut meaning to the public in terms of gauging the relative merits of different options. The engineering economic analysis is a critical factor in getting a project accepted. EGR2302-Engineering Economics Al Akhawayn University 2 Topics to Be Covered in Today’s Lecture Section 9.1: Public Sector Analysis Section 9.2: Benefit Cost Analysis Section 9.3: Alternative Selection Section 9.4: Multiple Alternatives Using the B/C Ratio Approach Solution. 7,7A,8 - Rate of Return (incremental analysis) Ch. 3)The B/C ratio gives a mental barrier(1.0) that must be cleared to be acceptable. Benefit / Cost Ratios. Economic engineering. 3, 4 Analysis methods Ch. The benefit/cost method of analysis is a procedure wherein the magnitude of the benefits (B) associated with an alternative is compared with the magnitude of is costs (C). Benefits of a nonmonetary nature need to be quantified in dollar terms as much as possible and factored into the analysis. Engineering economics projects can be categorized into one of two groups: no-alternative or multi-alternative. In dividing the benefits by the costs, a number equal to or greater than one would obviously mean that benefits exceed costs, indicating economic attractiveness. 5 - Present Worth Ch. Questions regarding finance and cash flow can be answered as cash flow analysis is performed. Otherwise, the defender remains. AGSIP 13 – Resource Economics Cost Benefit Analysis • Cost-benefit analysis is one of the main ways that economists analyse major development proposals and environmental problems • Similar to Net Present Value technique commonly applied in finance • Works by identifying all the costs and benefits that would result from a particular resource A benefit-cost ratio greater than one implies that the benefits outweigh the costs which makes the project investment worthy. Calculate the incremental benefit-cost ratio to compare the challenger and defender: (B f-B d)/(C f-C d) If the incremental B/C ratio is greater than 1, the challenger becomes the defender. You might have heard economic efficiency referred to as "benefit-cost ratio". EGR2302-Engineering Economics Al Akhawayn University 11 5.1 The Single Project: Opportunity Cost • A firm must always compare the single project to two alternatives; – Do Nothing ( reject the project) or, – Accept the project • Do Nothing: – Involve the alternative … 10, 11 - Depreciation & Taxes Ch. 15. what is the present worth of the 180mm pipe over the first 12 years of operation if operating costs increase by 0.75 (to 1.75 per hour) beginning in year 7? For i = 8 % and an economic life of 20 years for the system with no salvage value, what are the (a) conventional and (b) modified benefit/cost ratios for this project? In either case, the next alternative in order … Benefit-Cost Analysis The Benefit-cost analysis is commonly used to evaluate public projects. Benefit-cost ratio (BCR) is simply the ratio of benefits to costs. 9 - Benefit Cost Ratio & other methods Refining the analysis Ch. 5. The public is not educated in the ways of engineering economics. 6 - Annual Worth Ch. 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