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Cost-Benefit Analysis for Startups

The financial technology startup is considering hiring two new programmers who could increase revenue by 25%, but would cost $45,000. Using a cost-benefit analysis template in Excel, the current annual revenue is $220,000, discount rate is 5%, potential benefit is $55,000, and costs are $35,000. The net present value is calculated to be $19,047.62, indicating the hiring would provide benefits exceeding costs.

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Mustafa Ricky Pramana Se
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426 views5 pages

Cost-Benefit Analysis for Startups

The financial technology startup is considering hiring two new programmers who could increase revenue by 25%, but would cost $45,000. Using a cost-benefit analysis template in Excel, the current annual revenue is $220,000, discount rate is 5%, potential benefit is $55,000, and costs are $35,000. The net present value is calculated to be $19,047.62, indicating the hiring would provide benefits exceeding costs.

Uploaded by

Mustafa Ricky Pramana Se
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Cost-Benefit Analysis Excel Template

Visit: www.educba.com
Email: [email protected]
Let us take the example of a financial technology start-up which is contemplating on hiring two new programmers. The prom
expects the programmers to increase the revenue by 25% while incurring an additional cost of $45,000 in the next one year
The help promoter decides whether to goahead with the recruitment based on cost-benefit analysis if the revenue of the
company in the current year is $220,000 and the relevant discount rate is 5%:

Particulars Values
Current Revenue $220,000
Discount Rate 5%
Benefit $55,000
Costs $35,000

PV of Benefit is calculated as

PV of Benefit $52,380.95

PV of Cost is Calculated as

PV of Cost $33,333.33

Benefit-Cost Ratio is calculated using the formula given below


Benefit-Cost Ratio = ∑PV of all the Expected Benefits / ∑PV of all the Associated Costs

Benefit-Cost Ratio 1.57

Net Present Value is calculated using the formula given below


Net Present Value = ∑PV of all the Expected Benefits - ∑PV of all the Associated Costs

Net Present Value $19,047.62


ew programmers. The promoter
5,000 in the next one year.
ysis if the revenue of the
Let us take the example of two projects to illustrate the use of cost-benefit analysis. The sum of the present value
of expected benefits from Project 1 is $50 million with the sum of the present value of associated costs of $30 million.
On the other hand, the sum of the present value of expected benefits from Project 2 is $10 million with the sum
of the present value of associated costs of $5 million. Discuss which project is better based on cost-benefit analysis.

Particulars Project 1 Project 2


Sum of PV of Expected Benefits $50,000,000 $10,000,000
Sum of PV of Associated Costs $30,000,000 $5,000,000

Benefit-Cost Ratio is calculated using the formula given below


Benefit-Cost Ratio = ∑PV of all the Expected Benefits / ∑PV of all the Associated Costs

Project 1 Project 2
Benefit-Cost Ratio 1.67 2.00

Net Present Value is calculated using the formula given below


Net Present Value = ∑ PV of all the Expected Benefits - ∑ PV of all the Associated Costs

Project 1 Project 2
Net Present Value $20,000,000 $5,000,000
m of the present value
ciated costs of $30 million.
million with the sum
on cost-benefit analysis.

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