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Benefit Cost Ratio - Interpretation Question

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kniraj
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Benefit Cost Ratio - Interpretation Question

Postby kniraj Fri Dec 05, 2014 1:54 pm

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.
-----------------
Regards, Niraj
bs_pani
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Re: Benefit Cost Ratio - Interpretation Question

Postby bs_pani Fri Dec 05, 2014 4:55 pm

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
signor_rk
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Re: Benefit Cost Ratio - Interpretation Question

Postby signor_rk Fri Dec 05, 2014 5:07 pm

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.
Regards ,

Ranjit
kniraj
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Re: Benefit Cost Ratio - Interpretation Question

Postby kniraj Sat Dec 06, 2014 7:59 am

Thanks Bhabani and Ranjit ... At times it can be risky to take the questions and answers available in the net. :)
-----------------
Regards, Niraj
signor_rk
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Re: Benefit Cost Ratio - Interpretation Question

Postby signor_rk Sat Dec 06, 2014 8:44 am

Yeah Niraj, some free question sources are not reliable.
Regards ,

Ranjit
vsram
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Re: Benefit Cost Ratio - Interpretation Question

Postby vsram Thu Jun 22, 2017 11:45 am

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
nazrulq
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Re: Benefit Cost Ratio - Interpretation Question

Postby nazrulq Fri Jun 23, 2017 3:35 pm

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,
manishpn
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Re: Benefit Cost Ratio - Interpretation Question

Postby manishpn Fri Jun 23, 2017 8:18 pm

Yes I agree option A is the best choice
Br,
Manish P
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VCAB
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Re: Benefit Cost Ratio - Interpretation Question

Postby VCAB Mon Jun 26, 2017 9:45 am

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. :?:
manishpn
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Re: Benefit Cost Ratio - Interpretation Question

Postby manishpn Mon Jun 26, 2017 7:36 pm

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.
Br,
Manish P
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VCAB
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Re: Benefit Cost Ratio - Interpretation Question

Postby VCAB Thu Jun 29, 2017 5:08 pm

Thanks much

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