6.7 Effects of Different Lifetimes

When we evaluate two options using the NPV criterion, we need to be mindful of the different lifetimes.  A car with an NPV of $25,000 seems like a better investment than a car with an NPV of $30,000, but if the second car will last 10 years, but the first only five, that will change the calculation.

There are methods of evaluating investments with differing lifespans, such as the Equivalent Uniform Annualized Cost (EUAC) or Capitalized Cost, which give an average cost per year.  We cover these optional topics in Appendix B.