Finance and Budgeting for the Public Sector

| March 29, 2017

MMPA 6431/PPPA 8431/MMPA 5431/NPMG 5431/HUMN 8431: Finance and Budgeting for the Public Sector

Week 9 Application Assignment Handout

Time-Value Formulas and Cost-Benefit Analysis

Scenario 1: Present-Value Calculation

The following simple, present-value formula shows the effect of discounting on the cost of a public policy. In the formula, the discount rate will be set at:

(1 + r)timewhere:

1 = a constant

r = a selected interest rate

time= a period of time, usually a year

The formula is:

Cost or Benefit


The calculation occurs like this example of $1,000 over two years discounted at 10%:

$1,000 = $1,000 = $1,000 =

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