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Two schemes have ratios of 2.4 and 1.3, and the increment between them has a ratio of 1.1. The dearer scheme should be

  • A.rejected, the increment being below its own ratio
  • B.chosen only if the discount rate is lowered
  • C.chosen, the increment exceeding unity
  • D.rejected, its own ratio being lower

Answer: C

The extra expenditure buys more than its own worth in benefit, so it is justified even though the dearer scheme's overall ratio is the lower of the two. Ranking by individual ratio would have picked the smaller scheme.

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