Question: Consider the costs of 2 investments with different lives as listed below:
|
Project
|
Initial
Cost
|
Annual Net
Costs
|
Life
(years)
|
|
A
|
$40,000
|
$2,800
|
4
|
|
B
|
$28,000
|
$4,400
|
3
|
Make comparisons of these projects to establish which has higher/lower present values of their costs. Use the "rollover" method to establish equal project lives and also calculate the equivalent annual net costs, using a discount rate of 10% to calculate the annuity factor.