Unequal lives with the equivalent annual annuity

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Reference no: EM131347642

NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a? restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,400,000 with cash flows over the next six years of ?$230,000 ?(year one), ?$240,000 ?(year two), $330,000 ?(years three through? five), and ?$1,740,000 ?(year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash? flows: initial cost of ?$2,400,000 with cash flows over the next four years of ?$410,000 ?(years one through? three) and $3,480,000 ?(year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 10.5?% and the appropriate discount rate for the sports facility is 12.0?%, use the NPV to determine which project Grady should choose for the parcel of land. Adjust the NPV for unequal lives with the equivalent annual annuity. Does the decision? change?

Reference no: EM131347642

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