Which of the following NOT correct decision rules associated with Benefit-Cost Ratio (BCR) and Net Benefit-Cost Ratio (NBCR)?
Understand the Problem
The question is related to financial decision-making criteria, specifically how to interpret the Benefit-Cost Ratio (BCR), Net Benefit-Cost Ratio (NBCR), and the Internal Rate of Return (IRR) in the context of investment appraisal. It asks to identify incorrect decision rules associated with these ratios, as well as defining IRR.
Answer
"When NBCR is less than zero, Accept."
The incorrect decision rule is "When NBCR is less than zero, Accept."
Answer for screen readers
The incorrect decision rule is "When NBCR is less than zero, Accept."
More Information
For both BCR and NBCR, a value less than zero (or one for BCR) indicates that costs exceed benefits. Therefore, such projects should be rejected, not accepted.
Tips
A common mistake is misunderstanding the interpretive threshold. Always remember: a BCR > 1 or NBCR > 0 indicates benefits outweigh costs.
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