ECO1192- Final Exam Guide - Comprehensive Notes for the exam ( 38 pages long!)

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Lecture 5: public sector decision making based on a cost-benefit approach (cba) 7:26 pm: cost-benefit analysis focuses on profitability of projects. Cba analysis leads to the same conclusion regarding the acceptability of a project as npw, Nfw, aew, irr, and err methods, but likely different than simple and discounted payback methods (since they are based on liquidity, not profitability) B/c = 1 inconclusive (no difference between depositing fund at the bank at marr and investing in the project. Rank projects from smallest first cost to largest first cost. Ensure at least 1 project has valid b/c ratio > 1. Perform an incremental b/c ration analysis between the two smallest projects. > 1 select the larger initial cost project. < 1 select the smaller initial cost project. The last standing selected project is the best mutually exclusive projec. List set of possible projects to be considered. Sum all revenues and costs to estimate the total profitability of each alternative.

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