Cost Benefit Analysis: A Capital Budgeting Approach
90-749
Units: 6
Description
This public policy course provides a systematic framework, capital budgeting, for the evaluation of private-sector projects and also public sector projects; the latter builds on the former, and introduces issues of externalities, interdependencies between primary and secondary markets for goods and services, and the social rate of discount. Two courses, Public Finance, taught in the Fall by Professor Robert Strauss, and Cost-Benefit Analysis: A Capital Budgeting Approach taught in the Spring by Professor Robert Strauss, may be viewed as providing a conceptual and practical framework for those Heinz students seeking careers in the public sector, or those parts of the private sector that routinely deal with the public sector. This course strengthens each student's ability to compare resources devoted to providing current capital projects, and those proposed to new capital projects to understand how various stakeholders both pay for and receive benefits from them over time
The course is divided into 3 modules. In Module 1 (weeks 1 - 4), the course develops the essential techniques of private sector evaluation principles with a focus on long-lived capital projects and how such projects are typically financed through retained earnings, and bond and stock markets. In Module 2 (weeks 5 - 6), special problems which arise in the evaluation of public sector projects are discussed; a variety of evaluation techniques and applications especially suited to public sector projects are then examined. In Module 3 (week 7), actual cost-benefit studies in the policy areas of sports stadiums, elderly driving, and education, are examined.
Learning Outcomes
In this course the student:
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- Will learn how to think about time and money.
- Will learn how to measure private and public sector costs and benefits
- Will learn why market structure matters in understanding prices facing private and public sector decision makers.
- Will learn how to decide whether or not to “build a bridge.”
Prerequisites Description
some high school algebra; preferably introductory courses in basic statistics, basic microeconomics, some understanding of income and balance sheet arithmetic; Note: students desiring to confirm their financial accounting/reporting skills should consider doing SolidFooting during the Xmas break. It can be obtained for $29 and is widely recognized as the premier interactive learning tool, and used in top 10 undergraduate business programs See https://solidfootingaccounting.com/