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# DataPartner

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## How to compare projects with unequal economic lives?

August 16, 2017

To answer this question let’s take a look at the example described below. Suppose we are planning to buy a new machine for our production - we are choosing between two options: Machine A and Machine B (See table 1).

Table 1. NPV comparison.Machine A has a useful life of 3 years and Machine B has a useful life of 4 years. If we calculate NPVs of these two projects we will see that Machine B generates higher NPV than Machine A. However, we need to remember that **NPV**s of mutually exclusive projects with unequal economic lives **are not directly comparable!**

We need to **restate the NPV**s in a way that will allow direct comparison. In this case, a **monthly annuity payment of NPV** can be used as the basis for comparison. NPV as a monthly annuity payment is calculated as follows:

Where:

When the monthly annuity payment of NPV is calculated, we can see that Machine A is a more attractive investment than Machine B (See Table 2).

Table 2. Comparison of NPV as a monthly annuity.In Invest for Excel^{®}, the monthly annuity payment of NPV is calculated automatically, while another software feature, the **Comparison Table**, allows you to see and compare all profitability indicators side by side and easily evaluate the attractiveness of investment projects under consideration (See illustration below):