In case of unequal-lived, mutually exclusive projects, the use of net present value to select the better project could result in an incorrect decision.

Question

Quizplus · Accepted Answer

Net present value assumes equal project lives, so if the projects have different lives, the NPV calculation could produce inaccurate results. In this case, an alternative method like equivalent annuity approach should be used to determine the better project.

In Case of Unequal-Lived, Mutually Exclusive Projects, the Use of Net