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I want to calculate and compare the NPV for different ways of producing a good X. The NPV should be calculated for 30 years. The following technologies can be used for production:

  • Technology A, which has a lifetime of 15 years.
  • Technology B, which has a lifetime of 20 years.
  • Technology C, which has a lifetime of 25 years.

What is a "fair" way to I integrate the different lifetimes in the NPV?

Only calculating one investment (in the first year) is not reasonable, since it does not include the lifetime at all (unfair advantage of A). Just integrating a second round of investment costs after 15/20/25 years does not do the trick either, since I have to calculate the NPV for 30 years but Technology B and C would continue to be able to produce after this time frame.

Is it a good idea to calculate the remaining value of technology B and C at the end of the period (since they can still continue to run for 10 and 5 years) and then integrate it into the NPV?

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  • $\begingroup$ I would first ask why 30 years, since it seems to limit your analysis. But if it must be 30 years, your suggestion seems reasonable: suppose at the end of 30 years you will sell the technology at a price equal to the NPV of its remaining useful life at that time. $\endgroup$ – heh Nov 14 '19 at 15:15

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