Describe ANPV approach for comparing unequal-lived, mutualy exclusive projects.
Describe ANPV approach for comparing unequal-lived, mutualy exclusive projects.
Homework Answers
Answer :-
General :- The Net present value (NPV) of an investment project is defined as the sum of the present value of all the cash inflows less the sum of present value of all the cash outflows associated with an investment project.
Specific :- In case of investment projects with unequal useful life, Annual net present value (ANPV) is calculated by dividing the net present value of each investment project by the cumulative present value factors correspond to applicable discount rate.
Annual net present value (ANPV) = Net present value (NPV) of investment project / Cumulative present value factors corresponding to discount rate.
Decision rule :- In case of mutually exclusive investment projects (with unequal useful lives), The investment project having the highest annual net present value (NPV) is accepted for investment decision.
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Describe ANPV approach for comparing unequal-lived, mutualy
exclusive projects.
Unequal lives: ANPV approach JBL Co. has designed a new conveyor system. Man- agement must choose...
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Unequal lives-ANPV approach JBL Co. has designed a new conveyor system. Management must choose among three...
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Is NPV an acceptable method when comparing two mutually exclusive projects?
Is NPV an acceptable method when comparing two mutually exclusive projects?
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There are two ways to correct for projects with unequal lives when using the NPV approach....
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Problem (3): Consider the following two mutually exclusive projects, which have unequal service l...
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Unequal lives: ANPV approach JBL Co. has designed a new conveyor system. Man- agement must choose among three alternative courses of action: (1) The firm can sell the design outright to another corporation with payment over 2 years; (2) it can li- cense the design to another manufacturer for a period of 5 years, its likely product life; or (3) it can manufacture and market the system itself, an alternative that will result in 6 years of cash inflows. The...
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Unequal lives-ANPV approach JBL Co. has designed a new conveyor system. Management must choose among three alternative courses of action: (1) The firm can sell the design outright to another corporation with payment over 2 years. (2) It can license the design to another manufacturer for a period of 5 ears, its likely product life. (3) It can manufacture and market the system itself, this alternative will result in 6 years of cash inflows. The company has a cost f...
Unequal lives—ANPV approach Evans Industries wishes to select the best of three possible machines, each of which is expected to satisfy the firm's ongoing need for additional aluminum-extrusion capacity. The three machines A, B, and C-are equally risky. The firm plans to use a cost of capital of 11.2% to evaluate each of them. The initial investment and annual cash inflows over the life of each machine are shown in the following table. (Click on the icon located on the...
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6. The equivalent annual annuity approach - Evaluating projects with unequal lives Aa Aa E Evaluating projects with unequal lives Your company is considering starting a new project in either Spain or Mexico-these projects are mutually exclusive, so your boss has asked you to analyze the projects and then tell her which project will create more value for the company's shareholders. The Spanish project is a six-year project that is expected to produce the following cash flows: The Mexican project...
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