Benefit-Cost and Payback - Worked Examples

Example 1 — If PW benefits are PHP 12M and PW costs are PHP 9M, find B/C.

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Example 2 — If PW benefits are PHP 7.5M and PW costs are PHP 8.2M, interpret B/C.

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Example 3 — Convert annual benefits PHP 2M for 6 years to PW at 8%, with first cost PHP 7M.

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Example 4 — Incremental B/C: B costs PHP 3M more than A but yields PHP 3.6M additional equivalent benefits.

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Example 5 — A has B/C 1.8 and B has B/C 1.5. Can A automatically be chosen if only one can be built?

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Example 6 — Simple payback: initial investment PHP 1.0M and uniform net inflow PHP 250k/year.

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Example 7 — Uneven simple payback: PHP 800k investment; inflows 200k, 250k, 300k, 250k.

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Example 8 — Why is discounted payback longer than simple payback for positive interest and positive inflows?

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Example 9 — A project pays back in 2 years but has large cleanup cost in year 5. What is wrong with using payback alone?

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Example 10 — A flood-control benefit estimate includes both avoided repair cost and an insurance payout for the same damage. What audit question should be raised?

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Example 11 — Discounted payback: initial investment PHP 1.0M, net inflow PHP 300k at each year-end, discount rate 8%.

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Example 12 — Conventional versus modified B/C convention: PW benefits = PHP 12M, PW capital cost = PHP 7M, PW O&M = PHP 3M.

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