—•—Equivalent Annuity - Used Car —■ Equivalent Annuity - New Car

The break-even occurs at roughly 5500 miles; if there is a reasonable chance that the mileage driven will exceed this break-even, the new car becomes the better option.

Illustration 6.5: Using Equivalent Annuities as a General Approach for Multiple Projects The equivalent annuity approach can be used to compare multiple projects with different lifetimes. For instance, assume that Disney is considering three storage alternatives for its retailing division:

Alternative Initial Investment Annual Cost Project Life

Build own storage system $ 10 million $ 0.5 million Infinite

Rent storage system $ 2 million $ 1.5 million 12 years

Use third-party storage ----------$ 2.0 million 1 year

These projects have different lives; the equivalent annual costs have to be computed for the comparison. If the correct cost of capital for the retail business is 12.5%, the equivalent annual costs can be computed as follows:

Alternative Net Present Value Equivalent Annual Cost

Build own storage system $ 14.00 million $ 1.75 million Rent storage system $ 11.08 million $ 1.83 million

Use third-party storage $ 2.00 million $ 2.00 million

Based on the equivalent annual costs, Disney should build its own storage system, even though the initial costs are the highest for this option.

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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