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The lesson presents the undiscounted benefit-cost ratio as a project-evaluation criterion. Which observation does it make about that ratio's adherence to the lesson's two fundamental decision principles?
Answer & Solution
Correct answer: D.
1. The lesson examines the undiscounted benefit-cost ratio as a decision criterion.
2. It is compatible with the "bigger and better" principle by relating aggregate benefits to costs.
3. It does not follow the "bird in hand" principle because early receipts are given identical weights to later receipts.
4. The discounted version satisfies both principles by introducing a discount factor.
5. The other characterisations misstate the criterion's properties.
_Source: ICSI CS Executive Paper 8 (Financial and Strategic Management) — Lesson 1: Nature, Significance and Scope of Financial Management, pp. 6-20._
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