Evaluation of Public Alternatives
EVALUATION OF PUBLIC ALTERNATIVES
Evaluation of public alternatives is
selection of best alternative from the available alternatives. The factor
considered in selection of best alternative is profit maximization. The main
objective of any public alternative is to provide goods/services to the public
at the minimum cost. For the evaluation of public alternatives the benefit –
cost ratio is used. The benefit – cost ratio is given as
BC ratio = Equivalent Benefits /
Equivalent Costs
The
above equation also rewritten as,
BC ratio = BP / (P+ CP)
= BF / (PF + CF) = BA / (PA
+ C)
Here,
P = initial investment
C= Early cost of operation and
maintenance
PA = Annual equivalent of the
initial investment
PF = Future worth of the
initial investment
BP = Present worth of total
benefits
BF = Future worth of total
benefits
BA = Annual equivalent of
total benefits
CP = Present worth of yearly
cost of operation and maintenance.
CF = Future worth of yearly
cost of operation and maintenance.
If
this BC ratio is atleast one, the public alternative is justified; otherwise it
is not justified.
