Suppose that you are in year zero and you are conducting a cost-benefit analysis for two different medical care treatments with the following characteristics. Both have costs of $5,000 in Year 1. Treatment 1 provides benefits of $2,000 in each of the first four years only (this means year 1 through year 4). The second treatment provides benefits of $2,000 for each of Years 6 to 10 only (this means year 6 through year 10). For this problem ignore inflation. a. (8 points) Complete and submit the table in the excel file I provide for this problem. (As an example, I provide the numbers that correspond to year 0 and year 1 for each column. Remember that the present value (PV) formula is: PV = FV/(1+r)t, where r is the discount rate and t refers to the number of periods between year 0 and the year that you are looking into the future. In the video lecture for Module 3 I go over the example "Assessing Future Operating Costs of a Water Filtering System" that may help you with this question.) b. (2 points) Would any of these treatments pass the cost-benefit analysis? Carefully explain. (For this problem you may want to review the example on page 99, which I discuss in my video lecture for Module 3.)

3) (6 points) Use the information below to answer the following questions. Cost life-years gained Health-utility index QALYs Current Treatment $100,000 4 years 0.5 New Treatment $250,000 10 years 0.8 a. (2 points) Calculate the incremental cost-effectiveness ratio. Show ALL your work. b. (2 points) Given the information given in the table, calculate the number of quality- adjusted life-years (QALYs) for each treatment. Show ALL your work. c. (2 points) Calculate the cost-utility index for the new treatment. Show ALL your work.

Treatment 1 Year Costs Benefits PV of Costs, assuming a 12% discount rate PV of benefits assuming a 12% discount rate PV Net benefits (PV Benefits - PV Costs), assuming a 12% discount rate 0 0 0 0 0 0 1 5000 2000 4464 1786 -2678 2 3 4 5 6 7 8 9 10 Aggregated Net Benefits $ (2,678) Treatment 2 Year Costs Benefits PV of Costs, assuming a 12% discount rate PV of benefits assuming a 12% discount rate PV Net benefits (PV Benefits - PV Costs), assuming a 12% discount rate 0 0 0 0 0 0 1 5000 0 4464 0 -4464 2 3 4 5 6 7 8 9 10 Aggregated Net Benefits $ (4,464)