Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years. What is one widely used method to make the net present values of the proposals comparable?

A) Ignore the fact that Proposal F has a useful life of six years and treat it as if it has a useful life of nine years.
B) Adjust the life of Proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of Year 6.
C) Ignore the useful lives of six and nine years and find an average (7 1/2 years) .
D) Ignore the useful lives of six and nine years and compute the average rate of return.

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Nysir Thompson · Accepted Answer

Final Answer : B, Explanation :  To make the net present values of Proposal F and Proposal J comparable, the useful life of Proposal J should be adjusted to a time period that is equal to that of Proposal F. This can be done by estimating a residual value at the end of Year 6 for Proposal J, and using this value to calculate the net present value of Proposal J over a six-year period. This allows for an apples-to-apples comparison of the proposals' present values over a consistent time period.

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