Some Numerical Background

Figure 1.1 in Chapter 1 indicates that cost benefit analysis (CBA) solves for the present value of net benefits [NPV (B)] by subtracting discounted costs [GPV (C)] from discounted benefits [GPV (B)]. This Appendix, with the assistance of Microsoft Office Excel, is designed as a tutorial in discounting costs and benefits to determine the present value of net benefits.

The net present value (NPV) technique assumes that a dollar presently held by a local community is worth more than a dollar’s worth of benefits received in the future. Consider any positive rate of interest, say 10%. A year from now that dollar would be worth $1.10 in which case more than $1.00 worth of benefits could be purchased. Also, the dollar ...

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