In CBA, assumptions must be made about benefits, costs, the discount rate, and the lifetime of a project. In reality, these assumptions change. For example, in this chapters Sunny Village case study, the discount rate can be lower if the interest rate of the citys long-term debt is lower. The change of assumption inevitably changes CBA results. The type of analysis that examines the impact of assumption change on CBA results is called sensitivity analysis.

1. Now, assume that the discount rate is reduced from 10 percent to 5 percent, and everything else is unchanged. Conduct a Cost-Benefit Analysis for Sunny Villages Diagnostic System.

Table 6.4 Cost-Benefit Analysis for Two Public Infrastructure Projects ($) Cost Operating Personnel Capital Benefit Year Project A 0 (the current year) 300,000 150,000 100,000 200,000 100,000 25,000 LOOOOO 2,000 15,000 21,000 21,000 21,000 21,000 21,000 25,000 25,000 25,000 OOOOOOOO 30,000 150,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 Project B 0 (the current year) 500,000 100,000 125,000 25,000 OOO OWN 12,500 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 187,500 187,500 187,500 187,500 187,500 187,500 187,500 187,500 187,500 187,500