Selection of economically rational investments through cost benefit analysis

Abstract

Business decision making is an act of choosing between at least two competing simultaneously available investment alternatives. Cost benefit analysis enables direct and indirect measurement of all relevant costs and benefits expected in the future based on a given investment project. It enables the justification of investments and the expediency of redirecting capital to investment projects. However, cost benefit analysis is not a method of general optimization because it deals with the comparison of two or more alternatives, neither of which has to be the economic optimum. The goal of cost benefit analysis is the careful selection of alternatives that best meet the set objectives in the field of relevant constraints. The choice of economically rational investments through cost benefit analysis is the topic of this paper.

Keywords

• cost benefit analysis
• investment
• constraints
• investment rationality
• optimization
• costs and benefits