Chapter 11. Planning Horizons and Economic Life
Up to now, we've been requiring that all proposals being compared have the same life-span. In the real world, however, they won't all have the same lifespan. One proposal might have a 4-year lifespan, and another might have a 7-year lifespan. To compare these proposals consistently, you need to take into account what could happen financially in the 3 years following the 4-year proposal. Or, you need a way to address the financial aspects of the last 3 years if the 7-year proposal is cut short to 4 years. This chapter explains how to find the economic life of an asset and how to use that economic life to help set the planning horizon for a specific decision analysis. The chapter also explains how ...
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