You Are Evaluating Two Projects with Unequal Lives

question 62

Multiple Choice

You are evaluating two projects with unequal lives. Purchase of a high-quality machine will result in positive cash flows for nine years, while purchase of a medium-quality machine will result in positive cash flows for six years. At the end of each respective time period, the machine is expected to be worthless. How many times will the medium-quality machine project have to be linked in order to come up with a common time period?

• A)Twice
• B)Three times
• C)Four times
• D)Nine times

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Definitions:

Return On Total Assets

A financial ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets.

Return On Equity

A measure of financial performance calculated by dividing net income by shareholders' equity, indicating how well a company uses investments to generate earnings growth.

Net Profit Margin

A financial ratio indicating the percentage of revenue that remains as profit after all expenses are deducted.

Gross Margin

The difference between sales revenue and cost of goods sold, representing the profitability before deducting selling and administrative expenses.