Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years. What is one widely used method to make the net present values of the proposals comparable?

Question

Quizplus · Accepted Answer

To make the net present values of Proposal F and Proposal J comparable, the useful life of Proposal J should be adjusted to a time period that is equal to that of Proposal F. This can be done by estimating a residual value at the end of Year 6 for Proposal J, and using this value to calculate the net present value of Proposal J over a six-year period. This allows for an apples-to-apples comparison of the proposals' present values over a consistent time period.

Assume in Analyzing Alternative Proposals That Proposal F Has a Useful