Transport infrastructure evaluation using cost-1 benefit analysis: improvements to valuing the asset through residual value - a case study

摘要

Residual value (RV) is an important component of Cost Benefit Analysis (CBA) that is often overlooked which can artificially depress the project’s returns. The treatment of RV is inadequate and needs further research. Residual value represents the value of the infrastructure at the end of its project lifetime and the value that the asset generates over time. We propose three methods for calculating RV: straight-line depreciation, annuity/perpetuity and component. The straight-line depreciation method is the most commonly used, the component method is the most detailed method, and the perpetuity/annuity method is the simplest. We conclude that RV is more important in situations where its value is large compared to the total costs and benefits such as production facilities or when the benefit-cost ratio is close to 1.