Projects with Different Lives

In many cases, firms have to choose among projects with different lives1. In doing so, they can no longer rely solely on the net present value. This is so because, as a dollar figure, the NPV is likely to be higher for longer term projects; the net present value of a project with only 2 years of cash flows is likely to be lower than one with 30 years of cash flows.

Assume that you are choosing between a 5-year and a 10-year project, with the cash flows shown in Figure 6.4. A discount rate of 12% applies for each.

Figure 6.4: Cash Flows on Projects with Unequal Lives

Shorter Life Project $400 $400 $400 $400 $400 0 1 2 3 4 5

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.

Get My Free Ebook


Post a comment