Three alternatives identified as X, Y, and Z were evaluated by the B/C method. The analyst calculated project B/C values of 0.92, 1.34, and 1.29. The alternatives are listed in the order of increasing equivalent total costs. The analyst is not sure whether an incremental analysis is needed. (a) What do you think? If no incremental analysis is needed, why not; if so, which alternatives must be compared incrementally? (b) For what type of projects is incremental analysis never necessary? If X, Y, and Z are all this type of project, which alternatives should be selected based on the calculated B/C values?
Three alternatives identified as X, Y, and Z were
evaluated by the B/C method. The analyst calculated
project B/C values of 0.92, 1.34, and 1.29.
The alternatives are listed in the order of increasing
equivalent total costs. The analyst is not sure
whether an incremental analysis is needed.
(a) What do you think? If no incremental analysis
is needed, why not; if so, which alternatives
must be compared incrementally?
(b) For what type of projects is incremental
analysis never necessary? If X, Y, and Z are
all this type of project, which alternatives
should be selected based on the calculated
B/C values?
Benefit cost analysis helps managers to calculate the costs and benefits of a project. It is the ratio of benefits to costs of the company.
Project is beneficial if B/C>1.
Project is not beneficial if B/C<1.
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