An investment with a benefit-cost ratio greater than one indicates a potentially acceptable project.

An investment with a benefit-cost ratio greater than one indicates a potentially acceptable project.

• A. True
• B. False
• C. Not necessarily
• D. Indifferent

Answer: (A)

A benefit-cost ratio above one shows that the present value of benefits exceeds the present value of costs. When benefits outweigh costs in present-value terms, the investment creates net value, so it’s potentially acceptable as a project. In mathematical terms, a BCR greater than 1 means PV(B) > PV(C), which also implies a positive net present value (NPV = PV(B) − PV(C)). That positive value is the core reason it’s considered worth serious consideration, assuming the estimates and the chosen discount rate are reasonable. It’s not a guarantee of success in every situation, but it does indicate favorable economics on a present-value basis.

A benefit-cost ratio above one shows that the present value of benefits exceeds the present value of costs. When benefits outweigh costs in present-value terms, the investment creates net value, so it’s potentially acceptable as a project. In mathematical terms, a BCR greater than 1 means PV(B) > PV(C), which also implies a positive net present value (NPV = PV(B) − PV(C)). That positive value is the core reason it’s considered worth serious consideration, assuming the estimates and the chosen discount rate are reasonable. It’s not a guarantee of success in every situation, but it does indicate favorable economics on a present-value basis.