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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.

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Types of B/C Ratio:

  1. Conventional BCR
  2. 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

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