Reference no: EM131249591

This is a Cost Benefit Analysis course. Textbook: Cost-Benefit Analysis: Concepts and Practice, Fourth Edition by Anthony E. Boardman, David H. Greenberg, Aidan R. Vining, David L. Weimer. Please answer the questions as instructed. Thanks

1. Cost Benefit analysis has been attacked from a variety of perspectives. Clearly state what you believe are the most valid criticisms of using cost benefit analysis as a guide for public policy decisions. What are the strength of CBA?

2. Consider the following list of potential projects. Evaluate the costs and benefits of each project/combination of projects to determine net benefits and the benefit/cost ratio. Note costs and benefits are measured in millions.  You have been asked to evaluate a number of potential levees to prevent damage from future hurricanes.  For project A the costs are 50 and the benefits are 75.  For project B the costs are 10 and the benefits are 12.  For project C the costs are 40 and the benefits are 60.  If project B and C are completed together the benefits are 85.  Project E has costs of 22 and benefits of 15.

a. Create a table showing the costs, benefits, net benefits and benefit cost ratio

b. If only one project (consider the combined Band C project as one for the purposes of this question) which project should be undertaken

c. If funds are limited to 60 which projects if any should be undertaken?

d. If there is no limit on funds which project(s) should be undertaken?

3. We have discussed and evaluated what the effects of a price floor (minimum wage) in the labor market. There are also market effects from price ceilings.  Assume that you are asked to explain the effects of instituting a rent control law in Imaginary Town.  What will the effects on the market be?  How will this change impact existing and potential renters? How will it impact current/future landlords?  What will long term effects of this policy be?  What is your recommendation to the town board?

4. Suppose a library is considering the purchase of a new information system that will give users access to a number of on-line databases for 5 years. Benefits are estimated to be $100,000 per year including both cost savings and user benefits. The system has a onetime set up cost of $407,004. Assume the discount rate is 7%. There are no other costs or benefits.  

a. What is the net present value of the project?

b. Should the project be undertaken?

c. What would happen to our discount rate if we expected a large increase in the inflation rate over the next 5 years?

d. Under what circumstances would sensitivity analysis be an appropriate tool? Do these circumstances exist in this example?