When Comparing Two Projects with Different Lives, Why Do You

question 112

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) 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

---

Definitions:

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's operating performance.

Interest Charges

Costs incurred by borrowers for the use of borrowed money, typically expressed as an annual percentage rate.

Long-Term Debt

A financial obligation that is due for repayment in more than one year's time.

ROE

Return on Equity (ROE) is a measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested.