Instructions: Use the document “Cost Benefit Analysis Worksheet” to complete this assignment. Rubric: - Describes what a cost-benefit analysis is, and the main steps in conducting one, in a...

PUBLIC BUDGETING AND FINANCIAL MANAGEMENT
Table of Contents
Module 17: Cost-Benefit Analysis    3
1)    3
2)    3
3)    5
Module 18: Life Cycle Costing    7
1)    7
2)    8
3)    9
Module 19: Capitalization and Depreciation    9
1)    9
2)    9
3)    10
4)    10
Module 20: Long-Term Financing    10
1)    10
2)    11
c)    11
d)    12
References    13
Module 17: Cost-Benefit Analysis
1)
Cost benefit analysis is a business process used to analyze various decisions in the context of business. The benefits out of the project are compared with the actual cost involved in the project to determine the feasibility of the project. According to Duarte, garner, Shapiro and Weiss (2019), the opportunity cost is also considered for in-depth analysis of various options. All the direct as well as the indirect costs, opportunity costs, associated risks and revenue are considered for detail decision making. The concept of cost benefit analysis can be used for project of any size and nature.
Main steps for conducting cost benefit analysis include:
· Determination of the standards and the perspectives.
· Determination of various alternatives or base for caparison of costs and benefits out of an investment.
· Listing the impacts of such costs and revenues.
· Assessing the monetary value of both the costs and the benefits out of the project.
· Discounting the cash flows of the future into present value.
· Computing the Net Present Value of the project.
· Performing an in-depth sensitivity analysis.
· Selection of the alternative with the high net social benefits.
2)
    Particulars
    Amount ($)
    Initial Outflow (Cost of truck)
    $4,00,000
    Annual savings
    $90,000
    Life of truck
    4 years
    Residual value of truck
    $1,00,000
    Discount rate
    7.00%
    Inflation
    3.00%
    Calculation of Cash Flow considering Inflation
    Year
    Cash flow
    Inflation rate
    Cash flow after adjustment of inflation
    Year 1
    90000
    3%
    87379
    Year2
    90000
    3%
    84834
    Year 3
    90000
    3%
    82363
    Year 4
    90000
    3%
    79964
    Computation of NPV
    Year
    Cash flow after adjustment of inflation
    Discounting rate @ 7%
    Present Value of Cash Flow
    Year 0
    -400000
    1
    -400000
    Year 1
    87379
    0.934579439
    81662.2811
    Year 2
    84834
    0.873438728
    74096.97949
    Year 3
    82363
    0.816297877
    67232.53742
    Year 4
    79964
    0.762895212
    61004.02633
    Year 4 (Terminal Inflow)
    100000
    0.762895212
    76289.5212
    Net Present Value
    -39714.65445
A project should be accepted when the Net Present Value is greater than or equal to 0. However, from the data above, it can be observe that the NPV is negative therefore, the city should not buy the trucks.
3)
Lender 2
    Calculation of Cash Flow considering Inflation
    Year
    Cash flow
    Inflation rate
    Cash flow after adjustment of inflation
    Year 1
    90000
    4%
    86538
    Year2
    90000
    4%
    83210
    Year 3
    90000
    4%
    80010
    Year 4
    90000
    4%
    76932
    
    
    
    
    Computation of NPV
    Year
    Cash flow after adjustment of inflation
    Discounting rate @ 7.5%
    Present Value of Cash Flow
    Year 0
    -400000
    1
    -400000
    Year 1
    87379
    0.930232558
    81282.45654
    Year 2
    84834
    0.865332612
    73409.30823
    Year 3
    82363
    0.80496057
    66298.76562
    Year 4
    79964
    0.74880053
    59876.9615
    Year 4 (Terminal Inflow)
    100000
    0.74880053
    74880.05298
    Net Present Value
    -44252.45514
Lender...