Test Your Design

1. What recommendation would you make if the useful life of the project is three years? Six years?

Based on the data given above, if the useful life of the project is three years, the overall NPV cash flow is still negative. This is because the NPV of all costs is still greater than the NPV of the benefits. Thus, the project is not feasible. On the other hand, if the useful life of the project is six years, the overall NPV cash flow is twice the value of that in the previous year. Therefore, the project is seen to be feasible.