Benefit Cost Ratio ?

Submitted by bridge on Thu, 06/27/2013 - 16:53

A Report shows a benefit cost ration of 3:2. This means -

A.  The costs are 3:2 times the benefit

B.  The profit is 3:2 times the cost

C.  The payback is 3:2 times the costs

D.  The cost is 3:2 times the profit

 

PMPForSure Answer : C

 

I am unable to understand the answer. I feel the answer should be B.

 

Plz. explain the answer.

 

 

 

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rajeshn123

Fri, 06/28/2013 - 06:52

Benefit Cost Ratio BCR = (Revenue / Cost). Bigger the better.

Hence options A, B and D are wrong which leaves us with option C. Still the word Payback is ambigious.

http://pmzilla.com/benefit-cost-ratio

narinder

Fri, 06/28/2013 - 06:10

its Benefit to cost ratio not Cost to benefit ratio, so the Ans A is rules out.

Profit and benifits are diffrent. So Ans B is rules out.

Again in option D, Profit is mentioned, so it can also be rules out.

We are remaining with Ans C only. But i still wonder how payback is linked with this.

Regards

Narinder 

mohitkum

Fri, 06/28/2013 - 06:14

It's a debatable question and hence there can be multiple views. I am into financial domain and I would see this as a very simple question because in accounting, benefit cost ratio are often expressed as a payback period. The word profit is generic in nature and financial accounting does not uses this term when it comes to accounting. Here is the link I have handy with me:
http://www.mindtools.com/pages/article/newTED_08.htm

Thanks & Regards,
Mohit