What is the Benefit Cost Ratio for a project costing $200,000 in the first year no discount) that produces a net benefit of $50,000/year for five years when the discount rate is 5%?
A) $216,475
B) $16,475
C) 1.0824
D) 4 years

Question

Quizplus · Accepted Answer

To calculate the Benefit Cost Ratio (BCR), we need to divide the present value of benefits by the present value of costs.

Present value of costs = $200,000 (no discount rate in the first year)

Present value of benefits = $50,000 (1 - 1.05^-5)/0.05 = $223,525.06

BCR = $223,525.06 / $200,000 = 1.0824

A BCR greater than 1 means that the project is likely to be financially feasible and worthwhile. Therefore, the best choice would be C.

What Is the Benefit Cost Ratio for a Project Costing