B/C ratio is defined as the ratio of equivalent worth of benefit to the equivalent worth of cost. Equivalent worth may be either Present worth (Pw), Annual worth (Aw) or Future worth (Fw).
Benefit to Cost ratio is also known as Profitability Index (PI) being the indicator of the profit.
Types of B/C Ratio:
- Conventional BCR
- Modified BCR
Decision:
The project is economically feasible only if
B/C ? 1
B/C Ratio formulae:
| Methods | Conventional B/C | Modified B/C |
| Pw method | ||
| Aw method | ||
| Fw method |
Here,
I = investment
O/M = operation and maintenance cost
B = benefit
S = salvage value
CR = capital recovery
