## Benefit Cost Ratio - Interpretation Question

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kniraj
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Posts: 59
Joined: Sat Oct 11, 2014 4:45 pm

### Benefit Cost Ratio - Interpretation Question

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.
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Regards, Niraj
bs_pani
Super Member
Posts: 663
Joined: Mon Sep 22, 2014 3:36 pm

### Re: Benefit Cost Ratio - Interpretation Question

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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Posts: 182
Joined: Wed Jun 18, 2014 3:47 pm

### Re: Benefit Cost Ratio - Interpretation Question

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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Posts: 59
Joined: Sat Oct 11, 2014 4:45 pm

### Re: Benefit Cost Ratio - Interpretation Question

Thanks Bhabani and Ranjit ... At times it can be risky to take the questions and answers available in the net.
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Regards, Niraj
signor_rk
Contributor
Posts: 182
Joined: Wed Jun 18, 2014 3:47 pm

### Re: Benefit Cost Ratio - Interpretation Question

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

Ranjit
vsram
Posts: 3
Joined: Thu Jun 23, 2016 4:18 am

### Re: Benefit Cost Ratio - Interpretation Question

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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Joined: Sun Feb 26, 2017 6:06 am

### Re: Benefit Cost Ratio - Interpretation Question

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
Expert
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Joined: Sat Jan 04, 2014 3:55 pm

### Re: Benefit Cost Ratio - Interpretation Question

Yes I agree option A is the best choice
Br,
Manish P
PMP, PMI - ACP, SAFe Agilist
http://www.izenbridge.com/blog/7-effect ... ification/
VCAB
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Joined: Wed Dec 21, 2016 4:26 pm

### Re: Benefit Cost Ratio - Interpretation Question

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
Expert
Posts: 2514
Joined: Sat Jan 04, 2014 3:55 pm

### Re: Benefit Cost Ratio - Interpretation Question

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
PMP, PMI - ACP, SAFe Agilist
http://www.izenbridge.com/blog/7-effect ... ification/
VCAB
Participant
Posts: 73
Joined: Wed Dec 21, 2016 4:26 pm

Thanks much