5 5 the unequal duration does create problems when we

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5. 5. The unequal duration does create problems when we compare projects. In most cases, the unequal duration creates unequal payback period. And applying the NPV approach only to different durations would introduce wrong decisions. To solve the problems, two solutions are provided: the replacement chain approach and the equivalent annual cost (EAC) which compare the PMT for each projects. 6. 6. According to China's special national conditions, SOE are controlled by the government. SOE have significant political position in China. Some important political people used to in charge of some important stated-own enterprises, usually being their CEOs, which means SOE in China are closely related to politics, because the nation need to own most valuable and giant corporations to ensure the stability
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and development of the whole society so that people can have confidence in China's economic development. As a result, SOE should have the enough government support including funds, infrastructure and manpower. Therefore they do not need to take risks as other companies do. What SOE need is steady development and growth. From this point, we prefer to choose project 5. Because it receives equal cash flow in the following 15 years after the first year investment, without large cash outflow in the final year like project 4, or fluctuating cash flow like other projects. It shows pretty long-range, stable and safe characteristics. The value of NPV in project 5 is also
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Christopher Reinemann
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