Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 229

Choosing Between Mutually Exclusive Projects

! The net present values of mutually exclusive projects with different lives

cannot be compared, since there is a bias towards longer-life projects.

! To do the comparison, we have to

• replicate the projects till they have the same life (or)


• convert the net present values into annuities

To be fair in your comparison, you have to do one or the other.