Benefit-cost ratio is calculated by:
A)dividing the present value of future net cash flows by the initial outlay.
B)dividing the present value of cash flows by the working capital.
C)dividing the present value of future net cash flows by the sum of initial outlay and the working capital.
D)dividing the total cash flows by the initial outflow.

Question

Quizplus · Accepted Answer

The benefit-cost ratio is calculated by dividing the PV of future net cash flows by the initial outlay. This ratio helps in determining the profitability and feasibility of a project. If the BCR is greater than 1, it indicates that the project is profitable and feasible. A BCR of less than 1 indicates that the project should be rejected. Therefore, option A is the correct answer.

Benefit-Cost Ratio Is Calculated By