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Discussion

An analyst reports a benefit cost ratio of 1.35 without stating the convention used. The report is

  • A.adequate provided the discount rate is stated
  • B.incomplete, the two conventions giving different values
  • C.adequate, both conventions giving the same value
  • D.incomplete only if disbenefits are large

Answer: B

Conventional and modified ratios differ whenever disbenefits exist, so the figure cannot be checked or compared with another study. Both cross unity together, so the decision is safe even though the number is ambiguous.

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