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The benefit-cost ratio of a project is the

  • A.annual saving divided by the initial investment
  • B.internal rate of return divided by the discount rate
  • C.project life divided by the payback period
  • D.present value of the benefits divided by that of the costs

Answer: D

A ratio above one is the same test as a positive net present value, and it is useful for ranking when the capital available is limited. The second option is the reciprocal of simple payback rather than a discounted measure.

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