Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 228

Case 4 : NPV and Project Life

Project A

- $ 1500

$ 350 $ 350 $ 350 $ 350 $ 350

- $ 1000

$ 400 $ 400 $ 400 $ 400 $ 400

$ 350 $ 350 $ 350 $ 350 $ 350

Project B

NPV of Project A = $ 442

NPV of Project B = $ 478

Hurdle Rate for Both Projects = 12 %

The NPV of the shorter life project will generally be lower than the NPV of the

longer-life project. This is an issue only if they are mutually exclusive, i.e. you

can pick only one.