Question

why can't we compare between projects that has different period ( years ) , using the...

why can't we compare between projects that has different period ( years ) , using the present worth (PW) method or using future worth (FW) method ? while its possible to use annual worth comparison method ? what is it that makes annual worth method able to do such comparisons?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Present worth is calculated using discount factors that is calculated for each year

Now if two projects with different time periods hence both the firms will have different number of cash flows.

Hence to compare for these two projects we need to make these time periods equal by finding LCM of these two time periods.

Same logic goes with future worth.

Annual worth is to find equivalent annual net worth irrespective of life of investment.

Annual worth gives an idea that each project has equivalent annual worth that are comparable therefore it is not concerned with life of investment .

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
When we compare real GDP between different years, we are using constant prices, thus excluding or...
When we compare real GDP between different years, we are using constant prices, thus excluding or adjusting for inflation. we are keeping it real by not counting financial data such as interest and rent, but only real goods. e include inflation, because that is the reality in today’s world. we only use real reliable data, not imaginary or just estimated numbers.
Payback comparisons   Nova Products has a 4​-year maximum acceptable payback period. The firm is considering the...
Payback comparisons   Nova Products has a 4​-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternatives. The first machine requires an initial investment of ​$9,000 and generates annual​ after-tax cash inflows of ​$3,000 for each of the next 10 years. The second machine requires an initial investment of ​$33,000 and provides an annual cash inflow after taxes of ​$8,000 for 22 years. a.  Determine the payback period for each...
Compare Apple vs Microsoft over the last 4 years in finances using any accurate websites in...
Compare Apple vs Microsoft over the last 4 years in finances using any accurate websites in finances (like Yahoo) and then answer the following questions: Compare the valuation ratios across the two firms. How do you interpret the difference between them? Consider the enterprise value of both firms for each of the four years. How have the values of both firms changed over the time period? Conclude…. Which of the companies is better managed? Which one is a better investment?...
(20 pts) A federal agency, DUMP, The Department of Urban Municipal Planning (not a real federal...
(20 pts) A federal agency, DUMP, The Department of Urban Municipal Planning (not a real federal agency, at least as far as we know) is adding some recreational facilities to its office building. The initial cost of the project will be $1.5m, with an annual upkeep cost of $50k. Public benefits have been estimated to be $300k per year, but disbenefits of $200k (initial) have also been forecast. The facilities are intended to be permanent. Assuming an interest rate of...
Investment Payback Calculation Submit written responses to these questions. What is the difference between simple interest...
Investment Payback Calculation Submit written responses to these questions. What is the difference between simple interest and compound interest? What is the future value of $10,000 with an interest rate of 16 percent and one annual period of compounding? With an annual interest rate of 16 percent and two semiannual periods of compounding? With an annual interest rate of 16 percent and four quarterly periods of compounding? What is the relationship between the present value factor and future value factor?...
Boris is considering buying a new lawnmower. He has a choice between X mower and a...
Boris is considering buying a new lawnmower. He has a choice between X mower and a Y mower. The salvage value of each mower at the end of its service life is zero. X Y First Cost $350 $120 Life 10 years 4 years Annual Gas $60 $40 Annual Maintenance $30 $60 Find which alternative is preferable using the IRR method and a MARR of 5 percent. Answer the following question by using present worth computations to find the IRRs....
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial...
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used.    Project 1: Retooling Manufacturing Facility This project would require an initial investment of $4,950,000. It would generate $883,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,024,000. Project 2: Purchase Patent...
Nova Products has a 5-year maximum acceptable payback period. The firm is considering the purchase of...
Nova Products has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternative ones. The first machine requires an initial investment of $14,000 and generates annual after-tax cash inflows of $3,000 for each of the next 7 years. The second machine requires an initial investment of $21,000 and provides an annual cash inflow after taxes of $4,000 for 20 years. a) Determine the payback period for each machine. 
...
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial...
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used. Project 1: Retooling Manufacturing Facility This project would require an initial investment of $5,300,000. It would generate $946,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,108,000. Project 2: Purchase Patent...
1. Calculating project cash flows: Why do we use forecasted incremental after-tax free cash flows instead...
1. Calculating project cash flows: Why do we use forecasted incremental after-tax free cash flows instead of forecasted accounting earnings in estimating the NPV of a project? 2. The FCF calculation: How do we calculate incremental after-tax free cash flows from forecasted earnings of a project? What are the common adjustment items? 3. The FCF calculation: How do we adjust for depreciation when we calculate incremental after-tax free cash flow from EBITDA? What is the intuition for the adjustment? 4....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT