Jules Dupuit, an engineer from France, first introduced the concept of benefit cost ratio in 1848. Alfred Marshall, a British what is the leverage ratio in forex further enhanced the formula that became the basis for benefit cost ratio.
However, the formalized development of it did not occur until the Federal Navigation Act of 1936 was introduced. This act required that projects that were carried out by the U. In its simplest form, benefit cost ratio is a figure that is used to define the value of a project versus the money that will be spent in doing the project in the overall assessment of a cost-benefit analysis. This ratio provides a value of benefits and costs that are represented by actual dollars spent and gained. By definition the benefit cost ratio should be expressed using present values that are discounted. Widget Corporation’s top account executive has an idea for a new widget that will revolutionize the widget industry.
Once the production line has been set up, the revolutionary widget sells like hotcakes and produces record net profits for Widget Corp. 00 invested in the revolutionary widget. After one year of sales, the revolutionary widget paid for itself almost ten times. Using the benefit cost ratio allows businesses and governments to make decisions on the negatives and positives of investing in different projects. In other words, using benefit cost ratio analysis allows an entity to decide whether or not the benefits of a given project or proposal outweigh the actual costs that go into the creation of the project or proposal. Benefit cost ratio is simple enough to figure out, however, there are benefit cost ratio calculators available that take into consideration other factors that make the calculation a bit more complex.
Factors such as actual employee production or production line breakdowns can cause the benefit cost ratio to change dramatically and so they must be accounted for when delving into the details of a particular proposal or project. Businesses and governments can benefit greatly by figuring out the cost of a project versus its returns. For this reason alone, the benefit cost ratio is an important formula to be used in the decision making process for any project that might be presented. 24 hours a day from anywhere in the world. Send this article to a friend. Enter multiple addresses on separate lines or separate them with commas.
Bond basics are the introductory concepts to the bond market. Most authorities define the asset coverage ratio as a measure of a specific company’s ability to cover the amount of its existing debts. Experts agree that for utilities, the resulting asset coverage ratio should be at least 1. 5, while most industries require an asset coverage ratio of 2.