Assume in Analyzing Alternative Proposals That Proposal F Has a Useful

question 163

Multiple Choice

Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years. What is one widely used method to make the net present values of the proposals comparable?

• A) Ignore the fact that Proposal F has a useful life of six years and treat it as if it has a useful life of nine years.
• B) Adjust the life of Proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of Year 6.
• C) Ignore the useful lives of six and nine years and find an average (7 1/2 years).
• D) Ignore the useful lives of six and nine years and compute the average rate of return.

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Definitions:

Common Stockholders' Equity

The portion of a company's equity owned by common shareholders, calculated as total assets minus total liabilities and preferred stocks.

Net Income

The ultimate earnings of a company, calculated by subtracting expenses and taxes from its gross revenue.

Stockholders' Equity Statement

A financial statement that shows the changes in the equity of a company's shareholders over a specific period.

Balance Sheet

A financial statement that provides a snapshot of a company's financial position at a specific point in time, showing its assets, liabilities, and shareholders' equity.