Benefit/Cost Ratio Analysis – Graphical representation B-D A-B C - A E-A Incremental Cost $1000 $2000 $2000 $5000 Incremental Benefit $3360 $2630 $1400 $1670 Incr.B/Incr. Incremental Benefit-Cost Ratio If more than one alternative is considered for a single project, an incremental benefit-cost ratio can be used to determine which Alternative(s) are the most economically desirable (optimize additional benefits gained for the added cost). Benefit-Cost Analysis 6 The Benefit-cost analysis is commonly used to evaluate public (government) projects. Incremental net monetary benefit (INMB) as the value of incremental effects (АДЕ) less incremental costs (ДС), INMB = АДЕ - ДС, provides a continuous metric that does not face the decision ordering problems of the ICER as a ratio, while representing the same decision rule. The page provides you the Cost benefit ratio formula to calculate the Benefit-Cost Ratio. 3) Determine the project of choice using: A) Benefit to cost ratio B) Incremental Benefit to cost ratio P.W of Cost P.W of Benefit Project $15,500 $28,200 1 $13,500 $25,300 2 $2,800 $1,500 3 $5,300 $12,500 4 The Nail Gun type with best Benefit-Cost Ratio is … Just substitute the values of discount rate and the number of years … Cost–utility analysis. Incremental Benefit-Cost Ratio for Name Brand over Professional: ,ି଼,ସ ଵ଼,ହହିଷଶ,ସ = 0.845 The Incremental Benefit-Cost Ratio is less than 1, therefore, the Name Brand nail gun will be selected. Incremental cost is the amount of money it would cost a company to make an additional unit of product. This can be represented by the following formula: Alternatives are considered in increasing order of total discounted costs until all are considered. F is below the line: B/C ratio is < 1. N = 5 i = 10% If only costs are given, a reduction in costs can be used as benefits for the higher-cost option. Benefit-Cost Analysis 5 Framework of Benefit-Cost Analysis Valuation of Benefits and Costs Benefit-Cost Ratios Incremental B-C Analysis 6. The most common expression of this form of ICER is as cost (£) per incremental gain in the quality adjusted life years (£ per QALY). Examples of ICERs for some cancer drugs are shown in Table 5.2. C 3.36 1.32 0.76 0.33 15 A, B, C, and D are above the 45-degree line; their B/C ratio is > 1. In this form of analysis the ICER is expressed as the ratio of the incremental costs to the incremental utility gain. It is calculated by dividing discounted value of incremental benefits by discounted value of incremental costs. This method is analogous to the Incremental Benefit-Cost Ratio Method. Since the result is greater than 1, The Generic type is rejected. 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