You are evaluating two projects with unequal lives. Purchase of a high-quality machine will result in positive cash flows for nine years, while purchase of a medium-quality machine will result in positive cash flows for six years. At the end of each respective time period, the machine is expected to be worthless. How many times will the medium-quality machine project have to be linked in order to come up with a common time period?

Question

Quizplus · Accepted Answer

To find a common time period for the projects, we need to find the least common multiple (LCM) of the two project lives. The LCM of 6 and 9 is 18. Therefore, we need to link the medium-quality machine project three times (3 x 6 = 18) to get a common time period with the high-quality machine project. Therefore, the best choice is to purchase the high-quality machine as it has a longer life and will generate positive cash flows for a greater number of years.

You Are Evaluating Two Projects with Unequal Lives