Question

between net present value rule used in cost benefit analysis and benefit-ratio used in cost-effectiveness analysis. Why do most economists choose net present value rule?

fix ：“benefit ratio ” is “benefit-cost ratio”

Answer 1

Ans- firstly we understand about Net present value rule. In NPV we get accurate results by converting all future cost and benefit into present value,. Actually it is algebraic diffenrece b/w present value of all cost to present value of all benefit to get NPV.

Now came to point why economist more preferred to use NPV instead of benefit cost ratio.

There are reason behind this. Actually when we used benefit cost ratio for large project, then very hard to solve this. because there are many assumptions and uncertainty let. And that very hard to solve. BCR give a rough idea about project how much opportunity cost of capital etc. Istead of giving accurate idea. But NPV method give accurate information about project calculation. NPV ​​​​​is a better method for evaluating mutually exclusive projects instead of two method like as IRR Method and CBR method. So we can say economist most widely use of NPV of method.