1. What is BC Ratio?

BC Ratio (Benefit-Cost Ratio) is a financial metric used to evaluate the efficiency of an investment or project by comparing the benefits to the costs. A ratio greater than 1 indicates that benefits outweigh costs.

2. How Does the Calculator Work?

The calculator uses the BC Ratio formula:

Where:

• \( Benefits \) — Total monetary benefits of the project ($)
• \( Costs \) — Total costs associated with the project ($)

Explanation: The formula calculates the ratio of benefits to costs, providing a simple measure of project viability.

3. Importance of BC Ratio Calculation

Details: BC Ratio is crucial for investment decision-making, project evaluation, and resource allocation. It helps organizations prioritize projects with the highest return on investment.

4. Using the Calculator

Tips: Enter benefits and costs in dollars. Both values must be positive numbers, with costs greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What does a BC Ratio of 1.5 mean?
A: A BC Ratio of 1.5 means that for every dollar invested, $1.50 in benefits is expected to be returned.

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

Q3: Are there limitations to BC Ratio analysis?
A: Yes, BC Ratio doesn't account for the time value of money and should be used alongside other financial metrics like NPV and IRR for comprehensive analysis.

Q4: Can BC Ratio be used for non-monetary benefits?
A: While primarily used for financial analysis, BC Ratio can be adapted for non-monetary benefits by assigning monetary values to intangible benefits.

Q5: How does BC Ratio differ from ROI?
A: BC Ratio compares benefits to costs as a ratio, while ROI calculates the percentage return on investment relative to the initial cost.