Net Present Value-Unequal Lives
Daisy’s Creamery Inc., is considering one of two investment options. Option 1 is a $30,000 investment in new blending equipment that is expected to produce equal annual cash flows of $10,000 for each of seven years. Option 2 is a $33,000 investment in a new computer system that is expected to produce equal annual cash flows of $13,000 for each of five years. The residual value of the blending equipment at the end of the fifth year is estimated to be $7,000. The computer system has no expected residual value at the end of the fifth year.