Business Case Writing Cost-Benefit Analysis Techniques

Question 1

In a cost-benefit analysis (CBA), the 'discount rate' is used to:

Accepted Answer

Convert future costs and benefits to present-day values

Answer

Negotiate vendor discounts

Answer

Calculate employee bonuses

Answer

Determine marketing budgets

Question 2

A cost-benefit analysis is considered 'favorable' when:

Accepted Answer

The present value of benefits exceeds the present value of costs

Answer

Total costs are maximized

Answer

All risks are eliminated

Answer

The payback period exceeds 10 years

Question 3

Which cost category is typically excluded from a business case CBA because it remains constant regardless of the decision?

Accepted Answer

Fixed overhead costs that don't change with the decision

Answer

Variable costs

Answer

Incremental costs

Answer

Direct labor costs

Question 4

In US public sector cost-benefit analyses, the social discount rate used by federal agencies is typically determined by:

Accepted Answer

OMB Circular A-94 guidelines

Answer

The Federal Reserve

Answer

The CBO baseline rate

Answer

Individual agency discretion only

Question 5

Which type of benefit is captured in a CBA as 'cost avoidance'?

Accepted Answer

Expenses that will not be incurred because of the proposed solution

Answer

New revenue generated by the project

Answer

Tax credits received from the IRS

Answer

Marketing ROI

Question 6

A 'full-cost accounting' approach in a business case CBA differs from traditional accounting because it:

Accepted Answer

Includes all direct, indirect, and social costs of an initiative

Answer

Ignores indirect costs

Answer

Only counts capital expenditures

Answer

Excludes operating costs