Download
1 / 11
110 likes | 235 Vues
This document explores economic estimation techniques like Present Worth Analysis (PWA) and Cost Effectiveness Analysis (CEA) for firms considering expansion. An example illustrates the PWA, comparing costs of expanding an existing facility versus constructing a new one, factoring in waste treatment annual costs and a 20-year lifespan. Additionally, the B/C and CEA methods provide frameworks for assessing various strategies to manage hazardous waste disposal. The analysis aids firms in making informed economic decisions based on benefits and costs over time.
E N D
T7 P2 Economic Analyses
Economic Estimation • WAG = wild a… guess • SWAG = sophisticated WAG • WAGNER = WAG not easily refuted
Present Worth Analysis “Lump sum” future costs Annualized costs
Example - PW Analysis A firm needs to expand its manufacturing capacity. The present facility could be expanded to meet the needs at a cost of $1.2 million. Waste treatment costs for the expanded facility would be about $184,000 per year. An entirely new facility that would reduce waste production could be built for approximately $3.35 million. The new facility would have an estimated annual waste treatment cost of $56,000. Assume a 20-year useful life for the facilities and a zero salvage value for both. If the prevailing interest rate is 10%, which alternative is preferable?
Benefit/Cost Analysis B = benefits C = costs D = disbenefits or negative benefits
Cost Effectiveness Analysis Method: • Identify factors • Assign weights • Assign relative effectiveness score • Calculate effectiveness = (weighted sum of option) – (weighted sum of do-nothing option) • Plot cost vs. effectiveness
Example – CE Analysis A manufacturing plant is faced with the loss of a hazardous waste disposal site. It is evaluating three strategies. • Ship waste to a distant site. • Construct major in-plant changes to reduce hazardous waste generation. • Rebuild the plant using a new process that does not generate hazardous waste.
