Which method assesses investment projects by considering social costs and benefits?

Which method assesses investment projects by considering social costs and benefits?

• A. Cost Benefit Analysis (CBA)
• B. Net Present Value
• C. Internal Rate of Return
• D. Payback

Answer: (A)

Assessing investment by weighing all effects on society is done with Cost Benefit Analysis. It looks at both the positive impacts and the negative ones that a project may have on people, communities, and the environment, and it often puts them in monetary terms so they can be compared directly. If the total social benefits outweigh the total social costs, the project is considered worthwhile from a societal perspective. This differs from methods that focus mainly on the profitability of the business itself, such as NPV and IRR, which evaluate financial returns to the firm and may ignore wider social impacts. Payback concentrates on how quickly money invested is recovered, without fully accounting for the long-term benefits or costs to society.

Assessing investment by weighing all effects on society is done with Cost Benefit Analysis. It looks at both the positive impacts and the negative ones that a project may have on people, communities, and the environment, and it often puts them in monetary terms so they can be compared directly. If the total social benefits outweigh the total social costs, the project is considered worthwhile from a societal perspective.

This differs from methods that focus mainly on the profitability of the business itself, such as NPV and IRR, which evaluate financial returns to the firm and may ignore wider social impacts. Payback concentrates on how quickly money invested is recovered, without fully accounting for the long-term benefits or costs to society.