1. What is the Benefit Cost Ratio?

The Benefit Cost Ratio (BCR) is a financial metric used to evaluate the economic efficiency of projects or investments by comparing the present value of benefits to the present value of costs. A BCR greater than 1 indicates that the benefits outweigh the costs.

2. How Does the Calculator Work?

The calculator uses the Benefit Cost Ratio formula:

Where:

• \( PV_{Benefits} \) — Present value of all benefits ($)
• \( PV_{Costs} \) — Present value of all costs ($)

Explanation: The ratio provides a simple measure of project viability, where values above 1 indicate a favorable investment.

3. Importance of BCR Calculation

Details: BCR is crucial for project evaluation, investment decision-making, and cost-benefit analysis in both public and private sectors. It helps prioritize projects with the highest economic returns.

4. Using the Calculator

Tips: Enter the present value of benefits and costs in dollars. Both values must be positive numbers greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What does a BCR of 1.5 mean?
A: A BCR of 1.5 means that for every dollar invested, the project returns $1.50 in benefits, indicating a profitable investment.

Q2: What is considered a good BCR?
A: Generally, a BCR greater than 1.0 is considered acceptable, with higher values indicating better investment opportunities.

Q3: How is BCR different from ROI?
A: While both measure investment efficiency, BCR compares benefits to costs as a ratio, while ROI calculates the percentage return on investment.

Q4: What are the limitations of BCR?
A: BCR doesn't account for project scale, risk factors, or non-monetary benefits. It should be used alongside other financial metrics.

Q5: Can BCR be used for public projects?
A: Yes, BCR is widely used in public sector project evaluation, particularly for infrastructure and policy decisions.