Running Head: BENCHMARK-COST BENEFIT ANALYSISBenchmark Cost Benefit AnalysisNAMEINSTITUTIONDATE1BENCHMARK-COST BENEFIT ANALYSIS2Module 17: Cost benefit analysisCost-benefit analysis is a decision-making procedure used to arrive at the most viablebusiness decisions (Kenton W. 2019). The procedure involves taking into account benefitsof a particular action and taking away the costs involved. The procedure more often thannot involves creating models.Firstly, we calculate the NPV, which is the difference in the current value of cash inflowsfrom the present value of cash outflow in a stipulated period of time (Kenton W., 2020).Cash inflow include saving 90,000 for a period of 4 years and a salvage value of 100,000.The real cost of borrowing is given by 7% which is discount rate plus the rate of inflationof 3%. Therefore, the appropriate cost of borrowing is 10%=90000(1(1+10%)4 )10%100,000+ (1+10%)4 = 353,589.23The cost of purchase of trucks is 400,000. Consequently, the Net Present Value is:= 353,598.23- 400,000= - 46, 410.76The city should not buy the trucks since the project has a negative NPV.Under lender 1 the NPV is given as:=90000(1(1+11.5%)4 )11.5%100,000+ (1+11.5%)4 = 340,964.68The cost of purchase of trucks is 400,000. Consequently, the Net Present Value is:= 340,964.68- 400,000= - 59,035.32Under lender 2 the NPV is given as:BENCHMARK-COST BENEFIT ANALYSIS=90000(1 ...
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