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Cost-Benefit Parameters for a Financial Analysis


So we have looked at a number of factors to consider when conducting a cost-benefit analysis, now lets put all the information we need into a spreadsheet so we have something to work with. Lets say we are starting a small ecotourism thing will provide the lodging all the food the guests can come and watch the monkeys it will be great, but thats to a financial cost benefit analysis to see if this project is worthwhile this will be from our perspective private perspective.

So remember costs and benefits are measured in the money coming in and out of our company, also what is in we have already factored out inflation and we’re working with real numbers. First but set the lifespan ever project but say it is going to take us the first two years to get set up, then we will open and then will operate for fifteen years.

We are not going to show in this video but all under here is where we will be calculating our cash flows you might be confused by the stops at 16 instead of 17 it is because we call everything from now up till the end of the first year year 0, so this is actually the first year and we count 1,2,3,4 for all the way up to seventeen.

So we call this year sixteen but there are technically seventeen years we are looking at in case that was confusing you, now well it confuses me next to be able to estimate the costs and benefits were first gonna wanna know how many guess he might have. With our facilities let’s say we are gonna have a maximum occupancy the 20 people, for our average occupancy rate we are likely to only have about half of the rooms filled on any given day but this will slowly increase over time.

So let’s say for the first three years will have an average occupancy rate a 54, percent for the next five years this is estimated to increase by 2 percent to 56 percent, and after that we will see our occupancy is an average of 59 percent, so that is the average number of people that are using our facilities on any given day. Next we are going to want to know how many guests for gonna have per year, we are going to multiply our maximum occupancy by our occupancy rate for each year which gives us the average number of people were gonna get every day and then we just multiply that by 365 days for the year.

So for years 2 through 4 will have an estimated 3,900 and 42 guests per year for years 529 will have an estimated four thousand eighty eight guests per year, and for years 10 through 16 will have an average 4300 seven guests per year or rather the should be guest days per year as this will probably be the same guess for multiple days.

So these numbers are the number of times per year I guess is charged for a day I get for the benefits, our revenue will have money coming in from the daily charge to customers so what’s up our prices. Will start the price low and increase in overtime let’s say two hundred dollars for the first year as we try things out, then we’ll increase that to three hundred twenty dollars for the next two years.

Then let’s just assume that the price is going to increase by 15 percent after year 4 and again after year 9, there that is all the information we need for our revenue now let’s set up the costs. Well separated into fixed costs costs that do not change no matter how many people use the facilities like the cost the building it, and variable costs costs that do chains like the costs for food based on how many guests we have for fixed costs we have the construction cost the buildings and facilities.

2.1 million dollars these costs will happen during the first year will make a little note that we can’t delete it later, will have start-up costs this could be things like the hiring and training process putting in a booking system advertising setting up arrangements with local communities and whatever else.

And I just mess that up the should be year 0 were constructing it in the present year and the startup costs happen in the second year in year one, see it’s confusing will buy equipment in the year two when we opened and they will have to be replaced every five years. And that is making noted that about the time line so it easier will have to pay rent on the land every year as well as insurance every year, and will also have to pay property tax every year, and every year will pay the staff I guess, regulator fixed costs for variable costs will have the operating and maintenance costs.

This could be like the costs of cleaning the rooms or the administration casa taking on a guest, we will have the cost for gas up transportation and tours and the cost of food per guest, so later to calculate these costs will not apply the cost per guest by the number of guest days in a year.
So these are all over costs there is one more revenue item we need to include, when the project is all done the buildings will still have a bit have useful life in them and we can solve them off.

The skull the residual or salvage value this will be 10 percent of the original construction costs and it will happen in the last year. And finally will be discounted at a rate of 10 percent and this is the real discount rate, neat and the next video will set up the cash flows and calculate the net present value and internal rate of return.

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