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Can we compare the NPV of two projects with different lifetimes?
A method of comparing projects of unequal lives that assumes that each project can be repeated as many times as necessary to reach a common life span; the NPVs over this life span are then compared, and the project with the higher common life NPV is chosen.
How is the IRR on a project related to the NPV?
The NPV method results in a dollar value that a project will produce, while IRR generates the percentage return that the project is expected to create. Purpose. The NPV method focuses on project surpluses, while IRR is focused on the breakeven cash flow level of a project.
Is the project with the higher IRR the better project?
Essentially, the IRR rule is a guideline for deciding whether to proceed with a project or investment. The higher the projected IRR on a project—and the greater the amount it exceeds the cost of capital—the more net cash the project generates for the company. Generally, the higher the IRR, the better.
How do projects compare to NPV?
Comparing NPVs If both projects have a positive NPV, compare the NPV figures. Whichever project has the higher NPV is the more profitable and should be your first priority. Doing both projects is fine, since both will be profitable, but if you can do only one then go with the higher-NPV project.
When evaluating projects with unequal lives Which of the following methods?
The equivalent annual annuity approach is one of two methods used in capital budgeting to compare mutually exclusive projects with unequal lives. When used to compare projects with unequal lives, an investor should choose the one with the higher equivalent annual annuity.
Is a higher IRR better than NPV?
NPV is a better tool for making decisions about new investments because it provides a dollar return. IRR is less useful when making investment choices as its results do not provide information about the amount of money a project will likely generate.
Is a higher or lower NPV better?
A positive NPV means the investment is worthwhile, an NPV of 0 means the inflows equal the outflows, and a negative NPV means the investment is not good for the investor.
What is better higher or lower NPV?