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 timeframe
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

Question

Quizplus · Accepted Answer

Computing an annuity with an equivalent PV to the NPV allows for comparison of projects on a per-year basis, making it easier to evaluate their cost or value created annually, despite having different lifespans.

When Comparing Two Projects with Different Lives, Why Do You