Assume in Analyzing Alternative Proposals That Proposal F Has a Useful

question 116

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 that makes 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 six.
• 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:

Valuation Rate

A rate used to estimate the current value of cash flows or assets, often used in the appraisal of businesses.

Market Value

Market value is the price at which an asset would trade in a competitive auction setting, reflecting its worth in the current market.

Gross Income

The total income earned before any deductions or taxes are applied.

Standard Deduction

The fixed amount the IRS allows taxpayers to subtract from their taxable income if they do not itemize deductions, differing by filing status.