Cost-Benefit Analysis for Investment Decisions: Chapter 7 (Principles Underlying The Economic Analysis of Projects)
AbstractWhile the financial analysis of a project focuses on matters of interest to investors, bankers, public sector budgets, etc., an economic analysis deals with the impact of the project on the entire society. The primary difference between the economic and financial evaluation is that the former aggregates benefits and costs over all the country's residents to determine whether the project improves the level of economic welfare of the country as a whole while the latter conside'rs the project from the point of view of the well-being of a particular institution or subgroup of the population. A broad consensus exists among accountants on the principles to be used in undertaking a financial appraisal of a potential investment. There is also considerable agreement among financial analysts on the cash flow and balance sheet requirements for a public sector project to pay for itself on a cash basis. However, these accounting and financial principles are not a sufficient guide for undertaking an economic appraisal of a project. This chapter explains the relationship between the financial and the evaluations and how the economics is grounded in microeconomic theory and it applications in welfare economics.
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Bibliographic InfoPaper provided by JDI Executive Programs in its series Development Discussion Papers with number 2011-07.
Length: 28 pages
Date of creation: Aug 2011
Date of revision:
economic evaluation; financial appraisal; net cash flow; willingness to pay; economic resource cost;
Find related papers by JEL classification:
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-11-01 (Accounting & Auditing)
- NEP-ALL-2011-11-01 (All new papers)
- NEP-PPM-2011-11-01 (Project, Program & Portfolio Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Development Discussion Papers
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