Which of the following best describes the appropriate way to evaluate mutually exclusive projects with unequal lives?

Question

Quizplus · Accepted Answer

Both replacement chain and equivalent annual annuity methods are appropriate ways to evaluate mutually exclusive projects with unequal lives. The replacement chain method breaks down the projects into smaller segments that have equal lives, and then calculates the NPV of each segment using a common discount rate. The sum of the NPVs of all segments gives the NPV of the project. The equivalent annual annuity method calculates the equal annual cash flows that would have the same NPV for each project, and then compares the annuities to determine which project is better. Both methods adjust for the fact that the projects have different lives, making them appropriate for evaluating mutually exclusive projects.

Which of the Following Best Describes the Appropriate Way to Evaluate