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!!!