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An incremental benefit cost ratio less than one means

  • A.the analysis should be repeated at a lower discount rate
  • B.the cheaper alternative is preferred
  • C.the dearer alternative is preferred
  • D.both alternatives should be rejected

Answer: B

Correct answer: the cheaper alternative is preferred

The extra spending fails to return its own value, so it should not be made and the cheaper alternative remains the defender. Note that the dearer alternative may still have a perfectly acceptable overall ratio - it is the increment between them that fails, and that is the quantity the decision turns on.

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