Module20 - Making the Decision with Multiple Projects...

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Making the Decision with Multiple Projects Deterministic Evaluation: Unequal Lives Part I
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Key Concepts Last Module: Total and Incremental Investment Analysis This Module: Unequal Lives Analysis Evaluate revenue and service projects with unequal lives.
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Cases to Examine Revenue Projects with Equal Lives Revenue Projects with Unequal Lives Service Projects with Equal Lives Service Projects with Unequal Lives All projects with mixed lives.
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Reconsider our Satellite Example Assume the following three options are available: Purchase and launch new satellite Investment of $200M, 5 year life , $250K per year, $15M SV Purchase satellite in orbit from competitor Investment of $175M, 3 year life , $300K per year, no SV Lease satellite in orbit from competitor Investment of $250K, 2 year contract , $100M per year, no
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Revenue Projects and Unequal Lives Consider our purchase options: New satellite with 5-year horizon. “Used” satellite with 3-year horizon. Combined project (purchasing both) has 5 year horizon. Question : if comparing 3- and 5-year horizon projects, what happens in the final two years?
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Critical assumption : We can assume the longest horizon (5 years in this example) for all projects and assume all proceeds are invested at the MARR through that time. Thus: find FW of each project at that time (5) and take the maximum. But, this is the same as selecting the project with the highest PW!
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Module20 - Making the Decision with Multiple Projects...

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