Engineering Board Exam Reviewer · Benefit-Cost Ratio and Payback Period · easy
Alternative 1 costs P1.0 million with a present worth of benefits of P1.4 million. Alternative 2 costs P1.5 million with a present worth of benefits of P2.0 million. Find the incremental benefit-cost ratio of Alternative 2 over Alternative 1.
- 1.33
- 1.2
- 1.4
- 0.83
Answer
B. 1.2
Solution
B/ C=2.0-1.4/1.5-1.0=0.6/0.5=1.2. Since it exceeds 1, the extra investment in Alternative 2 is justified.
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