When comparing two projects with different lives,why do you compute an annuity with an equivalent present value (PV)to the net present value (NPV)?
A)so that you can see which project has the greatest net present value (NPV)
B)so that the projects can be compared on their cost or value created per year
C)to reduce the danger that changes in the estimate of the discount rate will lead to choosing the project with a shorter time frame
D)to ensure that cash flows from the project with a longer life that occur after the project with the shorter life has ended are considered
E)to avoid complications arising from alternating cash inflows and outflows

Question

Quizplus · Accepted Answer

Computing an annuity with an equivalent present value allows for the projects to be compared on their cost or value created per year. This is important when comparing projects with different lives, as it enables a fair comparison of the economic benefits over time. The other options are not as relevant - A is partial and only focuses on NPV, C is not a significant issue in this context, D is relevant but not the most important, and E is not described as a primary concern.

When Comparing Two Projects with Different Lives,why Do You Compute