Cost-Benefit Analysis


DEFINITION of 'Cost-Benefit Analysis'

A process by which business decisions are analyzed. The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted. Some consultants or analysts also build the model to put a dollar value on intangible items, such as the benefits and costs associated with living in a certain town. Most analysts will also factor opportunity cost into such equations.


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BREAKING DOWN 'Cost-Benefit Analysis'

Prior to erecting a new plant or taking on a new project, prudent managers will conduct a cost-benefit analysis as a means of evaluating all of the potential costs and revenues that may be generated if the project is completed. The outcome of the analysis will determine whether the project is financially feasible, or if another project should be pursued.

  1. Discounted Cash Flow (DCF)

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  2. Internal Rate Of Return - IRR

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  3. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present ...
  4. Opportunity Cost

    1. The cost of an alternative that must be forgone in order to ...
  5. Guns And Butter Curve

    The classic economic example of the production possibility curve, ...
  6. Capital Budgeting

    The process in which a business determines whether projects such ...
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  1. What are the disadvantages of using net present value as an investment criterion?

    While net present value (NPV) calculations are useful when you are valuing investment opportunities, the process is by no ... Read Full Answer >>
  2. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  3. Do you discount working capital in net present value (NPV)?

    Net present value (NPV) calculations should include the discounted value of changes in working capital. This treatment of ... Read Full Answer >>
  4. How is working capital different from fixed capital?

    There are several key differences between working capital and fixed capital. Most importantly, these two forms of capital ... Read Full Answer >>
  5. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  6. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>

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