Policy Memorandum Cost-Benefit Analysis (CBA) Template

Institute for Public Policy Studies (IPPS)

Name: Andy Sherbo

Alternative #1: Supermax Prison (Example) Title of Policy Memorandum: CBA Example
Date: February 9, 2009
Constant 2008 Dollars Advisor: Dr. Caldwell
PV Benefit PV 7%
Year Cost Description Cost $ Benefit $ Discount
Cost $ Description Benefit $
0 Start-Up $526,600 $526,600 $0 $0 1.000
1 Personnel Costs, etc. $360,000 $336,600 Medical Savings, etc. $640,000 $598,400 0.935
2 " $360,000 $314,280 " $640,000 $558,720 0.873
3 " $360,000 $293,760 " $640,000 $522,240 0.816
4 " $360,000 $274,680 " $640,000 $488,320 0.763
5 " $360,000 $256,680 " $640,000 $456,320 0.713
6 " $360,000 $239,760 " $640,000 $426,240 0.666
7 " $360,000 $224,280 " $640,000 $398,720 0.623
8 " $360,000 $209,520 " $640,000 $372,480 0.582
9 " $360,000 $195,840 " $640,000 $348,160 0.544
10 " $360,000 $182,880 " $640,000 $325,120 0.508
11 " $360,000 $171,000 " $640,000 $304,000 0.475
12 " $360,000 $159,840 " $640,000 $284,160 0.444
13 " $360,000 $149,400 " $640,000 $265,600 0.415
14 " $360,000 $139,680 " $640,000 $248,320 0.388
15 " $360,000 $130,320 " $640,000 $231,680 0.362
16 " $360,000 $122,040 " $640,000 $216,960 0.339
17 " $360,000 $114,120 " $640,000 $202,880 0.317
18 " $360,000 $106,560 " $640,000 $189,440 0.296
19 " $360,000 $99,360 " $640,000 $176,640 0.276
20 " $360,000 $92,880 " $640,000 $165,120 0.258

Total $ $7,726,600 $4,340,080 $12,800,000 $6,779,520

Net Present Value $ $2,439,440
Benefit-Cost Ratio 1.56
Internal Rate of Return (IRR) 53.16%
Discounted Payback Period in Years 3.55
Notes:
(1) Input data in only columns D and H, green highlighted area. Simply override numbers in the Example.
(2) Spreadsheet automatically computes Net Present Value (NPV), Benefit-Cost Ratio, IRR, and Discounted Payback Period.
(3) You may need to add together certain Costs and Benefits as there is one line per year for this data for each year. Just keep track of your
numbers and how you added these together for input on the Spreadsheet. Use brief descriptions.
(4) Be sure to adjust all cash flows to 2008 Dollars when using the OMB Circular A-94 Real Discount Rate of 7%.