Benefit - Cost Ratio Analysis?

[Lucky1]

I have seen trick problems on this topic that don't specify whether to calculate all items to a present value or as annual payments. Is there a trick here I am missing or have I been reviewing some badly worded problems?

Thanks.

 

[IlPadrino]

It doesn't matter so long as you're comparing economic equivalence... that is, cash flows that have the same economic effect regardless of how or when the flows occur. Alternatives to be compared require a common time basis... choose a point in time that best fits the analysis of alternatives, usually present (P) and sometimes future (F).

 

[treyjay]

many times the wording of the problem will tip you off as to what to use (PV or EAP). If PV results in fewer steps to find equivalence, then use PV or vice-versa for Equiv Annual Payments.

 

[Lucky1]

After going back and reworking problems using either NPV or EAC the light bulb went on and you are right, it doesn't matter as long as they are equivalent units. Thanks for your help.