Need some help answering the below question.
Assume that an alternative has a 3-year life and that you calculated its annual worth over its 3-year lifecycle. If you were told to provide the annual worth of that alternative for a 4-year study period, would the annual worth value you calculated from the alternative's 3-year life cycle be a valid estimate of the annual worth over the 4-year study period? Why or why not?© BrainMass Inc. brainmass.com March 21, 2019, 7:07 pm ad1c9bdddf
No it will not be a valid estimate. When we are talking about the annual worth of an alternative, we are talking about the equivalent annual cost/benefit. This is done to compare the projects which have unequal life. So if there is a project / alternative with a life of 3 years, the cash flows form the projects may have any pattern i.e. equal every year, increasing as time goes up, decreasing as time moves down or just random. In this case, it is very difficult for us to know what will be ...
The life of the project is dissected.