Determine which project is better using A) Benefit to cost ratio only B) Using a

Question

Determine which project is better using A) Benefit to cost ratio only B) Using a benefit to cost ratio on incremental investment (adjusting to be compatible with Present Worth method): Projects A1 A2 ?? A4 PW of Benefits (B) PW of Costs (I+C-C) 180 123 10 91 126 74 36 32

Explanation / Answer

Project PW of Benefits(B) PW of Costs Benefit to Cash ratio = PW of Bnefits/PW of Costs Incremental Analysis between Project 1 and 2 = Difference in PW of immediate/ difference of Cost of immediate pair Incremental Analysis between Project 2 and 3 = Difference in PW of immediate/ difference of Cost of immediate pair Incremental Analysis between Project 2 and 3 = Difference in PW of immediate/ difference of Cost of immediate pair A1 180 126 1.43 1.10 1.89 0.946808511 A2 123 74 1.66 We will select project A1 overA2 since value>1 We will select project A1 overA3 since value>1 We will select project A3 over A1 since value>1 A3 10 36 0.28 A4 91 32 2.84 On basis Benefit to cost ratio Project A4 must be selected On Basis of Benefit to cost ratio Project A4 must be selected

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