Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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Table 4.44 Risk analysis: variable probability distributions 176Table 4.45 Probability distribution for ENPV and ERR 176Table 4.46 Results of risk analysis on Community contribution 176Table 4.47 Financial return on investment (thousands of Euros) 179Table 4.48 Financial return on national capital (thousands of Euros) 180Table 4.49 Financial return on local public capital (thousands of Euros) 181Table 4.50 Financial return on private equity (thousands of Euros) 182Table 4.51 Financial sustainability (thousands of Euros) 183Table 4.52 Economic analysis (thousands of Euros) 185Table 4.53 Main costs as a percentage of sales 188Table 4.54 Cost of labour / Main consumption 188Table 4.55 Conversion factors per type of cost 190Table 4.56 Sales of product C 191Table 4.57 Building costs (thousands of Euros) 191Table 4.58 New equipment costs (thousands of Euros) 191Table 4.59 Results of the sensitivity test 191Table 4.60 Assumed probability distributions of the project variables, Monte Carlo method 192Table 4.61 Probability parameters 193Table 4.62 Financial return on investment (thousands of Euros) 194Table 4.63 Financial return on national capital (thousands of Euros) 195Table 4.64 Return on private equity (thousands of Euros) 196Table 4.65 Financial sustainability (thousands of Euros) 197Table 4.66 Economic analysis (thousands of Euros) 198Table B.1 Indicative estimates for the long-term annual financial rate of return on securities 205Table B.2 Indicative social discount rates for selected EU Countries based on the STPR approach 207Table C.1 Benefit-Cost Ratio under budget constraints 212Table D.1 Illustrative definition of different market conditions and corresponding shadow wages 214Table E.1 Example of welfare weights 216Table E.2 Example of weights for the distributional impact 216Table E.3 Example of weights for regressive distributional impact 217Table E.4Share of expenditure and service exclusion, self-disconnection, or non-payment in some sectorsand countries for the bottom quintile 218Table H.1 Probability calculation for NPV conditional to the distribution of critical variables (€ million) 236Table H.2 Risk mitigation measures 2398
FIGURESFigure 1.1 Project cost spread over the years 19Figure 1.2 The project investment cost includes any one-off pre-production expenses 20Figure 1.3 The role of CBA in the Commission appraisal process 23Figure 2.1 Structure of project appraisal 25Figure 2.2 Structure of financial analysis 33Figure 2.3 From financial to economic analysis 47Figure 2.4 Conversion of market to accounting prices 48Figure 2.5 Sensitivity analysis 60Figure 2.6 Probability distribution for NPV 62Figure 2.7 Cumulative probability distribution for NPV 62Figure 3.1 First year demand required for ENPV=0 81Figure 3.2 Waste management systems from waste source to final disposal or removal 86Figure 3.3 Chart of the analysis of the water demand 96Figure 4.1 Probability distribution of investments costs, Triang (0.8; 1; 2) 136Figure 4.2 Results of the risk analysis for ERR 137Figure 4.3 Results of the risk analysis for ERR 137Figure 4.4 Probability distribution of investments costs. Triangular (0.9; 1; 3) 149Figure 4.5 Results of the risk analysis for ERR 149Figure 4.6 Results of the risk analysis for ERR 150Figure 4.7 Probability distribution assumed for the investment cost 162Figure 4.8 Calculated probability distribution of ENPV 162Figure 4.9 Diagram of the overall scheme for the project infrastructures 169Figure 4.10 Results of the sensitivity analysis for FRR(C) 177Figure 4.11 Results of the sensitivity analysis for FRR(K) 177Figure 4.12 Sensitivity analysis - Inflation rate on FNPV(C) and FNPV(K) 177Figure 4.13 Probability distribution of the investment costs 178Figure 4.14 Probability distribution of the project ENPV 178Figure 4.15 Probability distribution of sales of product C in units – Normal distribution 192Figure 4.16 Probability distribution of new equipment costs in Euro – Triangular distribution 192Figure 4.17 Probability distribution of ENPV 193Figure 4.18 Probability distribution of ERR 193Figure A.1 Demand and supply curves 200Figure A.2 Passengers, goods, GDP, 1990 – 2002 203Figure C.1 Project ranking by NPV values 210Figure C.2 A case of switching 210Figure C.3 The internal rate of return 210Figure C.4 Multiple IRRs 210Figure C.5 IRR and NPV of two mutually exclusive alternatives 211Figure E.1 Percentage of low income spent on electricity services by low-income consumers 217Figure E.2 Percentage of low income spent on gas services by low-income consumers 217Figure F.1 Main evaluation methods 222Figure F.2 Greenhouse-gas emissions in 2000 229Figure F.3 Recommended values for the external costs of climate change 229Figure H.1 Discrete distribution 234Figure H.2 Gaussian distribution 235Figure H.3 Symmetric and asymmetric triangular distributions 235Figure H.4 Relationship between utility and wealth for a risk averse society 237Figure H.5 Levels of risks in different phases of a given infrastructure project 2389
Page 3: ACRONYMS AND ABBREVIATIONSBAUB/CCBA
Page 7: TABLESTable 2.1 Financial analysis
Page 12 and 13: Cohesion Fund, and through the leve
Page 14 and 15: or the plant will not reveal excess
Page 17 and 18: CHAPTER ONEPROJECT APPRAISAL IN THE
Page 19 and 20: Some specifications for financial t
Page 21 and 22: FOCUS: INFORMATION REQUIREDGeneral
Page 23 and 24: In particular, CBA results should p
Page 25 and 26: CHAPTER TWOAN AGENDA FOR THE PROJEC
Page 27 and 28: objectives, are, as far as possible
Page 29 and 30: considered the appropriate shadow p
Page 31 and 32: 2.3.2 Feasibility analysisFeasibili
Page 34 and 35: This approach will be presented in
Page 36 and 37: Current assets include:- receivable
Page 38 and 39: The following items are usually not
Page 40 and 41: Mainly, the examiner uses the FRR(C
Page 42 and 43: The dynamics of the incoming flows
Page 44 and 45: eturn on their own capital (Kp). Th
Page 46 and 47: While the approach presented in thi
Page 48 and 49: 2.5.1 Conversion of market to accou
Page 50 and 51: Table 2.9 Electricity price dispers
Page 52 and 53: 2.5.1.2 Fiscal correctionsSome item
Page 54 and 55: previously estimated in projects wi
Page 56 and 57: FOCUS: ENPV VS. FNPVThe difference
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2.6 Risk assessmentProject appraisa
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Table 2.14 Impact analysis of criti
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Figure 2.6 Probability distribution
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eneficiary. The project proposer sh
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There are many ways to design an MC
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PROJECT APPRAISAL CHECK-LISTCONTEXT
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- reduction of congestion by elimin
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- the methods applied to estimate e
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- the marginal external costs: cong
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- the benefits for the existing tra
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The following tables show some refe
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3.1.1.6 Risk assessmentDue to their
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As shown in Figure 3.1, only under
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3.1.3.7 Other project evaluation ap
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- Waste Management Hierarchy rules
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The time horizon for a project anal
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every user support the total costs
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Territorial reference frameworkIf t
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Cycle and phases of the projectGrea
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One of the most important aims of t
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projects, as in other sectors in wh
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3.2.3.2 Project identificationBasic
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In order to evaluate the overall im
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for regassification plants, number
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Examples of objectives are:- change
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decontamination if any;- the techni
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3.3.3.6 Risk AnalysisCritical facto
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3.3.4.6 Risk assessmentCritical fac
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3.4.1.5 Economic analysisThe follow
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Financial inflows• Admission fees
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expectancy suitably adjusted by the
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The time horizon for project analys
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A Cost-Benefit Analysis should cons
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CHAPTER FOURCASE STUDIESOverviewThi
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- finally, there is the traffic tha
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c) Road users producer’s surplus:
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4.1.5 Scenario analysisTwo scenario
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The financial performance indicator
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Table 4.10 Economic analysis (Milli
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Table 4.12 Financial return on capi
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4.2 Case Study: investment in a rai
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4.2.4 Economic analysisThe benefits
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Financial investment costs have bee
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Figure 4.6 Results of the risk anal
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Table 4.22 Economic analysis (Milli
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4.3 Case Study: investment in an in
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ate of 0.6% per year is assumed for
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The shadow price of the CO 2 avoide
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As a result, the probability distri
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16 17 18 19 20 21 22 23 24 25 26 27
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4.4 Case Study: investment in a was
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4.4.2 Financial analysisAlthough in
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THE CALCULATION OF REVENUESReferrin
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0.15 m 3 /m 2 a depreciation of 20%
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As result, the probability distribu
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Figure 4.13 Probability distributio
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Table 4.48 Financial return on nati
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Table 4.50 Financial return on priv
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16 17 18 19 20 21 22 23 24 25 26 27
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4.5 Case Study: industrial investme
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4.5.4.1 Investment costsThe total i
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Finally, a residual value was estim
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This analysis shows the need to pay
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Table 4.62 Financial return on inve
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Table 4.64 Return on private equity
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Table 4.66 Economic analysis (thous
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ANNEX ADEMAND ANALYSISDemand foreca
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The method applied for the forecast
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Furthermore, travel demand depends
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This Guide supports a unique refere
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A higher discount rate for countrie
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Figure C.1 Project ranking by NPV v
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The main problems with this indicat
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EXAMPLE OF SHADOW WAGE IN DUAL MARK
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Another exhaustive way to include d
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Figure E.2 Percentage of low income
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ANNEX FEVALUATION OF HEALTH &ENVIRO
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Figure F.1 Main evaluation methodsS
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- expenditure on capital equipment
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due to air pollution or water conta
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BENEFIT TRANSFER - SELECTED REFEREN
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ANNEX GEVALUATION OF PPP PROJECTSIt
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adjustments for Competitive Neutral
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ANNEX HRISK ASSESSMENTIn ex-ante pr
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Reference ForecastingThe question o
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Figure H.5 Levels of risks in diffe
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ANNEX IDETERMINATION OF THE EU GRAN
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A.4. Technological Alternatives and
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GLOSSARYAccounting period: the inte
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Market price: the price at which a
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BIBLIOGRAPHY1. ReferencesBelli, P.,
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Ray, A. 1984, Cost-benefit analysis
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EnvironmentGeneralAtkinson, G., 200
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European Commission, DG Tren, 2003,
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Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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