When Comparing Two Projects with Different Lives, Why Do You

question 8

Multiple Choice

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) 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
• B) to reduce the danger that changes in the estimate of the discount rate will lead to choosing the project with a shorter timeframe
• C) so that the projects can be compared on their cost or value created per year
• D) so that you can see which project has the greatest net present value (NPV)

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Definitions:

Quantitative Advances

Quantitative advances refer to improvements or progress measured in numerical terms, typically regarding scientific research or data analysis.

Information-Processing Approach

The information-processing approach is a cognitive psychology theory that likens human thought processes to that of a computer, focusing on the way information is encoded, stored, and retrieved.

Qualitative

Pertaining to descriptions or distinctions based on qualities rather than on quantity or numerical measurements.

Assimilation

The process by which individuals or groups adopt the culture, practices, and perspectives of another group, often losing their original identity.