Question

a project costing P250,000 yields a yearly benefit of P80,000 for a period of 10 years with no salvage value at an interest rate of 6%. What is the benefit cost ratio

Answer 1

Cost benefit Ration = Discounted benefit of Project Benefit / Discounted value of Project Cost

Discounted Benefit of Project Benefit = Yearly Benefits * Present value value of 10 Year

80000 * {1 / ( 1+r) }n

80000 * (1 / 1.06 ) 10

80000 * 7.36

= 588800

Discount Benefit of Project Cost = Project Cost * Present value factor of 1 year

= 250000 * 1

= 250000

Cost Benefit Ration = 588800/250000 = 2.35

Cost Benefit Ration 2.35 : 1

It Means Every spending of 1 getting 2.35