The financial analysis that considers the costs of an asset against its usefulness is a:

• A. Break-even analysis
• B. Payback period analysis
• C. Cost-benefit analysis
• D. Return on investment analysis

Answer: (C)

The concept being tested is weighing what you spend on an asset against the value or usefulness you gain from it. Cost-benefit analysis does this by enumerating all costs (purchase, installation, operation, maintenance, energy, and disposal) and all benefits (energy savings, improved reliability, increased capacity, risk reduction, productivity, and any intangible gains), then comparing them, often by converting everything to monetary terms. If the benefits outweigh the costs, the asset is justified. This approach explicitly links costs to usefulness, which is why it’s the best fit for the question.

Break-even analysis looks only at when revenue covers costs, not the broader value or usefulness. Payback period measures how long it takes to recover the initial investment, without weighing ongoing benefits. Return on investment focuses on profitability of the investment as a ratio, but may not capture the full spectrum of benefits, including intangible ones. Cost-benefit analysis is the comprehensive method that ties costs to usefulness.