Answer to Question #144149 in Finance for KaterynaBR

Question

3.Assume now that there are two groups in the population. Each contributes equally to the cost of the project, but two-thirds of the benefits accrue to the richer group. Discuss how this alters the cost-benefit calculation. Under what circumstances will the decision to undertake the project be altered?

Answer 1

The cost-benefit calculation in this case will be altered since the results of the aggregate costs and benefits are not compared quantatively to determine if the benefits outweigh the costs. In this case, the two groups contribute equally to the cost of the project yet the majority of the benefits accrue to a certain group.

The decision to undertake the project will be altered if there will be no standard unit to measure all aspects of a project either positive or negative hence all benefits and costs of the project should be measured regarding the equivalent money value.