Chapter 4, Problem 5RQ

Explanation of Solution

Methods to perform economic cost-benefit analysis:

The three most commonly used methods to perform economic cost-benefit analysis are as follows:

• Net Present Value (NPV)
  • NPV is used to determine and compare the profit in the investment.
  • It helps to adjust the expenditures and returns, such that it can be evaluated equally over time.
  • By using this NPV, the current value of the project can be calculated, which is established by the capital cost of the company.
  • The current value of the project as well as the outlays can be determined by the discount rate.
• Return on Investment (ROI)
  • Return on investment (ROI) is defined as the ratio of receipts of net cash of the project and the outlays cash of the project...