Correct option is B
To assess the economic viability of a project, several financial appraisal methods are used to determine whether the project is profitable or feasible in terms of cost and benefit. The four major techniques used are:
(A) Pay Back Period (PBP): This method calculates how long it will take to recover the investment made in the project. Although simple, it does not account for the time value of money or returns after the payback period.
(B) Return on Investment (ROI): This is a profitability ratio that evaluates the gain or loss generated on an investment relative to its cost. It is a direct indicator of profitability.
(C) Net Present Value (NPV): This method uses discounted cash flow analysis to measure the difference between the present value of cash inflows and outflows over time, making it a highly reliable indicator.
(D) Benefit Cost Ratio (BCR): This is a ratio of the present value of benefits to the present value of costs. A BCR greater than 1 indicates economic viability.
These are all valid and standard economic viability assessment methods. (E) Critical Path Method (CPM) is a project scheduling technique and not an economic evaluation tool.
Information Booster:
Pay Back Period (PBP): Measures how quickly investment costs are recovered. Good for liquidity assessment.
Return on Investment (ROI): Easy to understand; reflects overall profitability in percentage terms.
Net Present Value (NPV): Accounts for time value of money. A positive NPV indicates that project generates profit.
Benefit-Cost Ratio (BCR): Used widely in public sector investment decisions and cost-benefit analysis.
These tools provide both quantitative and qualitative measures of profitability and feasibility.
Important for comparing alternative projects and prioritizing investments.
Additional Knowledge:
(E) Critical Path Method (CPM):
The Critical Path Method (CPM) is not an economic viability assessment tool; instead, it is a project management technique used to plan, schedule, and control complex project activities. It helps in identifying the sequence of crucial tasks (the "critical path") that directly impact the project duration. If any of these tasks are delayed, the entire project timeline will be affected. While CPM is vital for optimizing schedules, resource allocation, and timely delivery, it does not offer any insights into financial profitability, return on investment, or cost-benefit analysis. It focuses solely on time management rather than financial evaluation. Therefore, including CPM in a list of methods used for assessing the economic viability of a project is incorrect.
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