The four alternatives described below are being evaluated. If the alternatives a

Question

The four alternatives described below are being evaluated. If the alternatives are independent and there is no budget limitation, which alternative(s) should be selected based on the B/C analysis?

Question 14 options:

Select only C

Select A and C

Select A, B, C, and D

Select only A

Select only C

Select A and C

Select A, B, C, and D

Select only A

Cost in BIC Ratio Alternative Millions($) Compared to DN Incremental B/C when compared with alternative 1.50 0.85 1.30 0.70 50 60 65 0.55 1.40 0.65 3.50 0.80 0.05

Explanation / Answer

B/C analysis is based on benefit/cost ratio.

It is ratio of sum of present value of benefits to sum of present value of costs

Based on B/C analysis a project should be choosen only when B/C is greater than 1 as project benefits is outweighing its costs

In this case no budget constraint is there and all projects are independent so we will choose all projects with B/C value of greater than 1

We will look as the column where B/C ratio is given compared to DN as it is comparing with do nothing

B/C ratio of only project A and C is greater than zero. So we will consider both projects A and C

So the answer is option 'B' i.e option A and C

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