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Consider the following statements about benefit cost analysis.

1. A ratio of one corresponds to a present worth of zero   2. The two ratio conventions give the same numerical value   3. The highest ratio does not identify the best of several alternatives

  • A.2 and 3 only are correct
  • B.1 and 2 only are correct
  • C.1 and 3 only are correct
  • D.1, 2 and 3 are all correct statements about benefit cost analysis

Answer: C

Correct answer: 1 and 3 only are correct

Statements 1 and 3 are correct: unity corresponds to a zero present worth, and a ranking by ratio ignores scale. Statement 2 is false - the conventional and modified forms place disbenefits differently and give different numbers, which is precisely why the convention used must be stated.

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