what does the bcr tell you 
if a project has a bcr that is greater than 1 0 the project is expected to deliver a positive net present value npv and will have an internal rate of return irr above the discount rate used in the dcf calculations this suggests that the npv of the project s cash flows outweighs the npv of the costs and the project should be considered if the bcr is equal to 1 0 the ratio indicates that the npv of expected profits equals the costs if a project s bcr is less than 1 0 the project s costs outweigh the benefits and it should not be considered example of how to use the bcras an example assume company abc wishes to assess the profitability of a project that involves renovating an apartment building over the next year the company decides to lease the equipment needed for the project for 50 000 rather than purchase it the inflation rate is 2 and the renovations are expected to increase the company s annual profit by 100 000 for the next three years the npv of the total cost of the lease does not need to be discounted because the initial cost of 50 000 is paid upfront the npv of the projected benefits is 288 388 or 100 000 1 0 02 1 100 000 1 0 02 2 100 00 1 0 02 3 consequently the bcr is 5 77 or 288 388 divided by 50 000 in this example our company has a bcr of 5 77 which indicates that the project s estimated benefits significantly outweigh its costs moreover company abc could expect 5 77 in benefits for each 1 of costs limitations of the bcrthe primary limitation of the bcr is that it reduces a project to a simple number when the success or failure of an investment or expansion relies on many factors and can be undermined by unforeseen events simply following a rule that above 1 0 means success and below 1 0 spells failure is misleading and can provide a false sense of comfort with a project the bcr must be used as a tool in conjunction with other types of analysis to make a well informed decision 