You have two investments that have positive net present values and are financially feasible. Your boss...
You have two investments that have positive net present values and are financially feasible. Your boss wants you to make a recommendation on which one of the two to invest in given different useful lives? How do you account for this/make the decision?
Homework Answers
With unequal lives Equivalent annual income should be
calculated. EAA = NPV/((1-(1+r)^-n)/r) where r is rate and n can be
life.
of the project.
A project with higher Equivalent Annual Income should be preferred
over a project with lower equivalent annual income.If only NPV is
used then it might lead to faulty results and selection of less
favourable project.
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You have two investments that have positive net present values
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$
$
Amount to be invested
$
$
Net present value
$
$
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Packing Machine
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machines. Use the table of present values of an annuity of $1
above. Round to the nearest dollar.
Sewing Machine
Packing Machine
Present value of annual net cash flows
$
$
Amount to be invested
$
$
Net present value
$
$
b. Determine the present value index for the
two machines. If required, round your answers to two decimal
places.
Sewing Machine
Packing Machine
Present value index
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