Table for comparison of two
alternatives
Alternatives
Present
value
A
B
Benefits $300,000
$420,000
Costs
$200,000
$300,000
Net present
value $100,000
$120,000
Benefit/Cost
ratio
1.5
1.4
Net present value is indifferent between putting negative
social/environmental effects on
the benefit side or cost side.
This measure is not particularly appropriate when comparing undertakings of vastly different
sizes, i.e., in example above B has
a larger net present value simply because it is a larger project.
B/C ratio is not influenced by size of investment,
so it is better compares different-sized
alternatives, BUT there is a caveat!!!