What is the primary purpose of a cost-benefit analysis in project evaluation?

• A. To assess the economic feasibility of projects and demonstrate whether benefits exceed costs
• B. To calculate tax liabilities
• C. To predict stock market performance
• D. To measure employee productivity

Answer: (A)

The main idea is to weigh the costs and benefits of a proposed project to decide if it creates value. In a cost-benefit analysis you identify and quantify all relevant benefits—such as revenue, cost savings, time savings, safety improvements, and other positive impacts—and all relevant costs—like construction, operating, maintenance, and potential environmental or social costs. Since these cash flows unfold over time, you translate them into a common monetary measure present value, discounting future amounts to reflect the time value of money. The comparison is usually summarized with net present value or a benefit-cost ratio: if benefits exceed costs (for example, a positive NPV or a ratio above 1), the project is economically viable; if not, it isn’t worth pursuing.

For example, a city considering a new highway would compare the expected travel time savings and reduced accident costs against the construction and ongoing maintenance expenses. If the overall value of benefits, after discounting, outweighs the costs, the project supports a favorable decision.

This approach is focused on economic feasibility and value creation, which is why other options don’t fit. Calculating tax liabilities centers on tax rules, predicting stock market performance targets financial markets, and measuring employee productivity relates to HR metrics—none of which are the primary aim of a cost-benefit analysis.