Question

NPV unequal

lives.

Singing Fish Fine Foods has

​$2,100,000

for capital investments this year and is considering two potential projects for the funds. Project 1 is updating the​ store's deli section for additional food service. The estimated​ after-tax cash flow of this project is

​$630,000

per year for the next five years. Project 2 is updating the​ store's wine section. The estimated annual​ after-tax cash flow for this project is

​$530,000

for the next six years. If the appropriate discount rate for the deli expansion is

9.6​%

and the appropriate discount rate for the wine section is

8.9​%,

use the NPV to determine which project Singing Fish should choose for the store. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision​ change?

Answer 1