A project selection committee is reviewing a business case with a calculated Benefit-Cost Ratio (BCR) of 0.9. What does this BCR indicate, and what is the most appropriate recommendation?
The project will break even, so the decision should be based on non-financial factors.
The ratio is incomplete without the Internal Rate of Return (IRR), so no recommendation can be made yet.
The projected benefits do not outweigh the costs, and the recommendation should be to reject or re-evaluate the project.
The project is marginally profitable, and the recommendation should be to proceed with caution.
A Benefit-Cost Ratio (BCR) of 0.9 indicates that for every dollar invested in the project, the expected return is only 90 cents. Since the BCR is less than 1.0, the project's costs outweigh its projected benefits, making it financially unviable. Therefore, the most appropriate recommendation is to reject the project or return it for significant re-evaluation to increase benefits or decrease costs. A BCR of 1.0 signifies a break-even point, and a BCR greater than 1.0 signifies a financially viable project.
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What factors influence the calculation of the Benefit-Cost Ratio (BCR)?
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What does it mean for a project to be financially viable?
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Why is a BCR of less than 1 indicative of project rejection?
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