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?
A) One way is to find a common life, without the need to extend the projects to the least common multiple of their lives.
B) One way is to find the present value factors and then compare them.
C) One way is to compare the lengths of the projects and take the project with the shortest life.
D) One way is to find a common life by extending the projects to the least common multiple of their lives.
Answer: D
Explanation: D) One way is to find a common life by extending the projects to the least common multiple of the lives. The other way is to deal with unequal lives is by finding the equivalent annual annuity (EAA) for the NPV of each project over the life of the project.
You might also like to view...
Managers using the Boston Consulting Group growth-market share matrix are assessing the potential of a firm's existing SBUs to generate cash needed to invest in other businesses
Indicate whether the statement is true or false
A ________ prefers stock in a less risky asset than in a riskier asset
A) risk preferrer B) risk-averse person C) risk lover D) risk-favorable person