ECONOMICS
COST BENEFIT ANALYSIS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It does not consider the time value of money
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It is too complex to implement
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Different projects cannot be easily compared
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Not all costs and benefits can easily be assigned monetary values
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Detailed explanation-1: -It does not consider the time value of money. It is too complex to implement. Different projects cannot be easily compared. Not all costs and benefits can easily be assigned monetary values.
Detailed explanation-2: -Limitations of the Cost-Benefit Analysis For very large projects with a long-term time horizon, a cost-benefit analysis might fail to account for important financial concerns such as inflation, interest rates, varying cash flows, and the present value of money.
Detailed explanation-3: -Cost-benefit analysis allows an individual or organization to evaluate a decision or potential project free of biases. As such, it offers an agnostic and evidence-based evaluation of your options, which can help your business become more data-driven and logical.
Detailed explanation-4: -Traditional CBA tends to give little weight to costs that occur far in the future and overly emphasize short-term gain. This is because a high discount rate tends to give a lower value to benefits which accrue after longer periods. It does the same for the negative effects that may arise in the distant future.
Detailed explanation-5: -Advantage: Clarity in Unpredictable Situations. Disadvantage: Does Not Account for All Variables. Advantage: Helps You Make Rational Decisions. Disadvantage: Removes Gut Instinct.