BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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There are two ways to correct for projects with unequal lives when using the NPV approach. Which of the answers below is one of these ways?
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One way is to find a common life, without the need to extend the projects to the least common multiple of their lives.
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One way is to find the present value factors and then compare them.
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One way is to compare the lengths of the projects and take the project with the shortest life.
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One way is to find a common life by extending the projects to the least common multiple of their lives.
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Explanation:
Detailed explanation-1: -A method of comparing projects of unequal lives that assumes that each project can be repeated as many times as necessary to reach a common life span; the NPVs over this life span are then compared, and the project with the higher common life NPV is chosen.
Detailed explanation-2: -Answer and Explanation: Equivalent Annual Annuity is a method of evaluating projects with unequal lives.
Detailed explanation-3: -Net present value = uses all the discounted cash flows of a project = the PV of all benefits (cash inflows) minus the PV of all costs (cash outflows) of the project. Internal rate of return = the most popular alternative to the NPV.
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