What are meant by the following abbreviations in the context of transport appraisal?

(i) BCR

(ii) NPV

Give definitions and describe how they are calculated. Compare their strengths and weaknesses in transport appraisal. Explain which you think is better.

Expert Solution

BCR is a benefit-cost ratio that is used to analyze the worthiness of a project. all projects that have a value greater than 1 for BCR are liable to accept and the projects which gives a value less than 1 are considered non-profitable.

BCR = discounted value of incremental benefits / discounted value of incremental costs

NPV is the net present value. NPV is used to check whether the project or investment is profitable or not by comparing its cash inflow and outflow in present value.

NPV is based on the discounted cash flow technique and it is calculated using the following equation:

NPV = (Cash flows)/( 1+i)ⁿ

Here, cash flow is the difference between costs and benefits, i is the discount rate per annum and n is the number of years for which the return is to be calculated.

NPV is considered better than the BCR method as NPV is a discounted cash flow method and analysis is done over a period of time but in the case of the BCR method, the analysis is only done for a reference year which might not give the right perception if the reality.

Ally Wells answered 2 years ago

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