Pricing
51/3335–8FE Reference Handbook 10.4 · Engineering Economics · B/C
1. Simple Interest2. Single-Payment Compound Amount (F/P)3. Single-Payment Present Worth (P/F)4. Uniform-Series Compound Amount (F/A)5. Sinking-Fund Factor (A/F)6. Capital-Recovery Factor (A/P)7. Uniform-Series Present Worth (P/A)8. Effective Interest Rate9. Arithmetic Gradient Present Worth (P/G)10. Net Present Worth11. Benefit–Cost Ratio12. Straight-Line Depreciation13. Geometric Gradient Present Worth14. Capitalized Cost (Perpetual PW)15. Payback Period16. Break-Even Quantity17. Equivalent Uniform Annual Worth18. Internal Rate of Return vs MARR19. MACRS Depreciation20. Declining-Balance Depreciation21. Inflation and Real Interest22. Expected Value of Alternatives

Handbook formula

Benefit–Cost Ratio

Public-project criterion. Use PW (or AW) of benefits over PW of costs at the public discount rate. For mutually exclusive projects, rank by incremental B/C, not the largest ratio.

Present worth of benefits
Present worth of costs

Step-by-step solved example

PW benefits = $2.4 M, PW costs = $1.8 M. B/C? Accept?

P12345An
PW of benefits vs PW of costs on a cash-flow diagram.

  1. 1. Ratio

    B/C = 2.4/1.8 = 1.33.

  2. 2. Decision

    1.33 ≥ 1 → accept the project (standalone).

Answer: B/C = 1.33 · accept

10 practice questions

0/10 correct

1.Standalone public project is acceptable if B/C is

2.B/C = 0.85 means

3.For mutually exclusive designs, use

4.Disbenefits (e.g. noise) are treated as

5.B/C > 1 is equivalent to

6.User fees collected by the agency are usually

7.PW_B = 900, PW_C = 900 → B/C =

8.Never rank independent projects by B/C when capital is limited without

9.Annual worth may replace PW in B/C if

10.A B/C of 1.2 on $1 M cost means PW benefits are