Chapter 10.1, Problem 4R

To determine

To state: The profit rule for cost-benefit analysis.

Answer to Problem 4R

The rule of profitability index is used in cost benefit analysis

Explanation of Solution

Profitability index is used in cost benefit analysis to evaluate whether the business is to be expanded or not, whether a project is to be accepted or not. It is calculated by dividing the revenues from the costs.

If the answer comes greater than 1, the project is accepted else the it is rejected.

Economics Concept Introduction

Introduction: Cost benefit analysis helps to choose a better option for a business by analyzing the benefit caused from a particular cost.