The following example shows how to compare alternatives when useful lives (service lives) are not equal. Two different approaches
are presented. In the first method, a common plan period is
considered. Each alternative is replaced with an identical alternative
multiple times (as required) during the plan period. For example, in
comparing alternatives with 4 years and 8 years of service lives
respectively, a common plan period of 8 years is considered. During
the plan first alternative is replaced with an identical alternative at the
end of 4 years. This approach equalizes the impact of unequal
service lives. With this modification, net present value criterion can
be used to compare the alternatives. The following example
illustrates this approach.
Problem Statement
The alternative C has an initial cost of $5000, useful life of 4 years,
and generates a uniform annual benefit of $2000 and no salvage
value at the end of its useful life. The alternative D has an initial cost
of $12000, useful life of 8 years and generates uniform annual benefit
of $2500 and no salvage value.
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