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Benefit Cost Ratio - Interpretation Question

Posted: Fri Dec 05, 2014 1:54 pm
by kniraj
You are reviewing several feasibility reports.One report shows a benefit cost ratio of
2.1.This means:

A. The costs are 2.1 times the benefits.
B. The profit is 2.1 times the costs
C. The payback is 2.1 times the costs.
D. The cost is 2.1 times the profit.

The correct answer is D, but I would like to know why is it not A. I was under the impression that this ratio is not necessarily profit.

Re: Benefit Cost Ratio - Interpretation Question

Posted: Fri Dec 05, 2014 4:55 pm
by bs_pani
Dear Niraj,

Option A is correct. Remember in CBR analysis we consider the Gross Profile not the Net Profit. Option D taking about Profile (Net Profit) and option A is talking about benefits (Gross Profit). We have a similar question in Rita Page 121

Hope this helps

Cheers,
Bhabani

Re: Benefit Cost Ratio - Interpretation Question

Posted: Fri Dec 05, 2014 5:07 pm
by signor_rk
The logic itself says that the Benefit : Cost = 2.1 : 1 , so Benefit = 2.1 * Cost
In my opinion , there is not a single correct answer. Profit is not same as benefit.

Re: Benefit Cost Ratio - Interpretation Question

Posted: Sat Dec 06, 2014 7:59 am
by kniraj
Thanks Bhabani and Ranjit ... At times it can be risky to take the questions and answers available in the net. :)

Re: Benefit Cost Ratio - Interpretation Question

Posted: Sat Dec 06, 2014 8:44 am
by signor_rk
Yeah Niraj, some free question sources are not reliable.

Re: Benefit Cost Ratio - Interpretation Question

Posted: Thu Jun 22, 2017 11:45 am
by vsram
Well, i believe the answer is B, as per the ratio, Benefit/ Cost = 2.1/1 = > 2.1 x Cost = 1 x Benefit. Now, what is Benefit, it is "Advantage" - a gain and hence a profit. So your profit (Net or Gross) = 2.1 times Cost which is B and should be the true answer

Re: Benefit Cost Ratio - Interpretation Question

Posted: Fri Jun 23, 2017 3:35 pm
by nazrulq
In cost-benefit analysis, BCR or Benefit cost ratio is a tool for selecting the project.
This is to remember BCR = ((Benefit/Revenue/ Payback period amount)/ Project Cost
sometimes they included Profits .Profit is something you have net amount to be received after all costs are being paid. It is not the same as revenue. Revenue the money you generate after investing the amount.
BCR>1 to be an option selecting projects.The more the better.

In my opinion, 1 is the right choice.

BR,

Re: Benefit Cost Ratio - Interpretation Question

Posted: Fri Jun 23, 2017 8:18 pm
by manishpn
Yes I agree option A is the best choice

Re: Benefit Cost Ratio - Interpretation Question

Posted: Mon Jun 26, 2017 9:45 am
by VCAB
I am confused a bit....the question states that benefit cost ratio of 2.1. It does not say cost-benefit ratio. So, how can it be A. Option A suggest cost-benefit ratio.... Could you explain why option A is the best answer. In my opinion the question is severely flawed in its options. :?:

Re: Benefit Cost Ratio - Interpretation Question

Posted: Mon Jun 26, 2017 7:36 pm
by manishpn
yes not a good quality question i must say,

but as i mentioned in last weeks clarification session we should always look for BCR ratio where Benifit is divided by cost.

Re: Benefit Cost Ratio - Interpretation Question

Posted: Thu Jun 29, 2017 5:08 pm
by VCAB
Thanks much