Cost-Benefit Analysis Calculator
Introduction & Importance
Cost-benefit analysis (CBA) is a systematic approach to evaluating the pros and cons of a particular option or course of action. It’s crucial for making informed decisions, especially in business and policy-making.
How to Use This Calculator
- Enter the initial cost of the project.
- Enter the annual benefit you expect to gain from the project.
- Enter the number of years you expect the project to last.
- Enter the discount rate, which reflects the time value of money.
- Click “Calculate” to see the net present value (NPV) and benefit-cost ratio (BCR).
Formula & Methodology
The calculator uses the following formulas:
- Net Present Value (NPV) = ∑ [Bt / (1 + r)^t] – C0
- Benefit-Cost Ratio (BCR) = ∑ [Bt / (1 + r)^t] / C0
Real-World Examples
Data & Statistics
| Discount Rate | NPV | BCR |
|---|---|---|
| 5% | $10,000 | 1.5 |
| 10% | $5,000 | 1.25 |
Expert Tips
- Be realistic about your estimates.
- Consider all relevant costs and benefits.
- Sensitivity analysis can help you understand how changes in your inputs affect the results.
Interactive FAQ
What is the difference between NPV and BCR?
NPV tells you the present value of all future benefits minus the initial cost. BCR tells you how much benefit you get for each dollar spent.
Government Circular A-131 provides guidance on CBA for federal agencies.