Question

The table below lists the costs and benefits of five mutually exclusive projects.

Project	Costs	Benefits
A	9	12
B	6	5
C	3	4
D	9	11
E	4	6

1. (6 marks) Calculate the benefit-cost ratio (BCR) of each project:

Project	BCR
A
B
C
D
E

2. (6 marks) Use incremental benefit-cost analysis to determine the preferred project. Show your work.

The preferred project is Project ___________

Answer 1

a). BCR = Discounted value of benefits/ discounted value of costs

BCR_A = 12 / 9 = 1.33

BCR_B = 5 / 6 = 0.83

BCR_C = 4 / 3 = 1.33

BCR_D = 11 / 9 = 1.22

BCR_E = 6 / 4 = 1.50

b). The preferred project is Project "E", as its BCR is highest.