Comparing Net Present Values

The simplest way of choosing among mutually exclusive projects with equal lives is to compute the net present values of the projects and choose the one with the highest net present value. This decision rule is consistent with firm value maximization.

Illustration 6.1: Mutually Exclusive Cost Minimizing Projects with equal lives

Bookscape is choosing between alternative vendors who are offering phone systems. Both systems have 5-year lives, and the appropriate cost of capital is 10% for both projects. Figure 6.1 summarizes the expected cash outflows on the two investments:

Figure 6.1: Cash Flows on Phone Systems

Vendor 1: Less Expensive System -$ 8000 -$ 8000 -$ 8000 -$ 8000 12 3 4

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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