Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year O Year 1 Year 2 Year 3 Year 4 Year 5 T -$75 million $45 million $45 million F -$91 million $24 million $24 million $24 million $24 million $24 million Assuming a WACC of 7.5%, use the equivalent annuity approach (EAA) to compare the projects and pick the better choice, given repetition. O Project T is better as its EAA is higher by $1.72 O Project F is better as its NPV is higher by $300,805 O Project T is better as its EAA is higher by $1,722,411 Project F is better as its EAA is higher by $300,805 Project F is better as its EAA is higher by $1.72

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 11MC: In an unrelated analysis, you have the opportunity to choose between the following two mutually...
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Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are
repeatable. Their cash flows are depicted in the table below:
Project Year O
Year 1
Year 2
Year 3
Year 4
Year 5
T
-$75 million $45 million $45 million
F
-$91 million $24 million $24 million $24 million $24 million $24 million
Assuming a WACC of 7.5%, use the equivalent annuity approach (EAA) to compare the
projects and pick the better choice, given repetition.
O Project T is better as its EAA is higher by $1.72
O Project F is better as its NPV is higher by $300,805
O Project T is better as its EAA is higher by $1,722,411
Project F is better as its EAA is higher by $300,805
Project F is better as its EAA is higher by $1.72
Transcribed Image Text:Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year O Year 1 Year 2 Year 3 Year 4 Year 5 T -$75 million $45 million $45 million F -$91 million $24 million $24 million $24 million $24 million $24 million Assuming a WACC of 7.5%, use the equivalent annuity approach (EAA) to compare the projects and pick the better choice, given repetition. O Project T is better as its EAA is higher by $1.72 O Project F is better as its NPV is higher by $300,805 O Project T is better as its EAA is higher by $1,722,411 Project F is better as its EAA is higher by $300,805 Project F is better as its EAA is higher by $1.72
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