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Agricultural Microeconomics Lesson 6: Cost - Benefit Analysis. - PowerPoint PPT Presentation
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Presentation Title
This course developed by The Environmental Finance Center at UNC Chapel Hill for The North Carolina School of Science and Math and NCDPI is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License
“Cattle at Sunset” by Andrew S. Gray Photography, Creative Commons CC BY-NC-SAhttp://www.andrewsgray.com/2012/07/cattle-at-sunset/
Agricultural MicroeconomicsLesson 6: Cost - Benefit Analysis
This course developed by The Environmental Finance Center at UNC Chapel Hill for The North Carolina School of Science and Math and NCDPI is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Why Do a Cost-Benefit Analysis?
• Decide whether to undertake a project.
• Define project objectives.• Develop appropriate before and after
measures of project success.• Prepare estimates of the resources
required to perform the project work.
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Piedmont Farm
• 100 panel solar PV system• $75,000 estimated cost• Sale of electricity generated• Availability of federal grants and loan
guarantees to assist with financing.
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Calculating Benefits
How much electrical energy would a 100 panel solar PV system produce
each year?
100 panels x 0.25 kilowatts x 5 hours x 365 days
=45,625 kilowatt hours annually
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Calculating Benefits
How much estimated revenue will the Farm receive each year?
45,625 kilowatt-hour x $0.07 per kilowatt-hour
=$3,194
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Calculating Costs
Costs of loan repayment:– $37,500 REAP Guaranteed Loan– 4.0% interest rate– 30 year repayment term– $173 monthly ($2,148 annually)
Operating costs:– $250 each year
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Preparing Your Own Cost-Benefit Analysis
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
What are your results?YEAR PROJECT COST (CASH) REVENUE
LOAN REPAYMENT
OPERATING COSTS
NET BENEFIT (COST)
CUMMULATIVE NET BENEFIT
0 ($18,750) 0 0 0 ($18,750) ($18,750)1 0 $3,194 ($2,148) ($250) $795 ($17,955)2 0 $3,194 ($2,148) ($250) $795 ($17,159)3 0 $3,194 ($2,148) ($250) $795 ($16,364)4 0 $3,194 ($2,148) ($250) $795 ($15,568)5 0 $3,194 ($2,148) ($250) $795 ($14,773)6 0 $3,194 ($2,148) ($250) $795 ($13,978)7 0 $3,194 ($2,148) ($250) $795 ($13,182)8 0 $3,194 ($2,148) ($250) $795 ($12,387)9 0 $3,194 ($2,148) ($250) $795 ($11,592)
10 0 $3,194 ($2,148) ($250) $795 ($10,796)11 0 $3,194 ($2,148) ($250) $795 ($10,001)12 0 $3,194 ($2,148) ($250) $795 ($9,205)13 0 $3,194 ($2,148) ($250) $795 ($8,410)14 0 $3,194 ($2,148) ($250) $795 ($7,615)15 0 $3,194 ($2,148) ($250) $795 ($6,819)16 0 $3,194 ($2,148) ($250) $795 ($6,024)17 0 $3,194 ($2,148) ($250) $795 ($5,229)18 0 $3,194 ($2,148) ($250) $795 ($4,433)19 0 $3,194 ($2,148) ($250) $795 ($3,638)20 0 $3,194 ($2,148) ($250) $795 ($2,842)21 0 $3,194 ($2,148) ($250) $795 ($2,047)22 0 $3,194 ($2,148) ($250) $795 ($1,252)23 0 $3,194 ($2,148) ($250) $795 ($456)24 0 $3,194 ($2,148) ($250) $795 $33925 0 $3,194 ($2,148) ($250) $795 $1,13526 0 $3,194 ($2,148) ($250) $795 $1,93027 0 $3,194 ($2,148) ($250) $795 $2,72528 0 $3,194 ($2,148) ($250) $795 $3,52129 0 $3,194 ($2,148) ($250) $795 $4,31630 0 $3,194 ($2,148) ($250) $795 $5,111
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Discussion Questions
• Should Piedmont Farm invest in the solar panels? Why or Why Not?
• Are there any other costs that the farm owners might want to take into consideration?
• Are there other types of projects that the farm might consider instead of solar?
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Other Scenarios
Presentation Title
This course developed by The Environmental Finance Center at UNC Chapel Hill for The North Carolina School of Science and Math and NCDPI is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License
“Cattle at Sunset” by Andrew S. Gray Photography, Creative Commons CC BY-NC-SAhttp://www.andrewsgray.com/2012/07/cattle-at-sunset/
Next Class: Intro to Spreadsheet Modeling
This course developed by The Environmental Finance Center at UNC Chapel Hill for The North Carolina School of Science and Math and NCDPI is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License