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:

Parameter

A measurable attribute that defines or limits the characteristics of a population or a statistical model.

Population

The entire group of individuals or instances about whom we seek to make conclusions.

Statistic

A numerical measurement describing some characteristic of a sample, used to estimate the population parameter.

Sample

A smaller group chosen from the larger population for the purpose of gathering statistical data through measurements, observations, or inquiries.