Crockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial after-tax investment of $10,000 ana the firm. Project A has an expected ife of 2 years with after-tax cash inflows of $6,000 and $9,000 at the end of Years 1 and 2, respectively. Project B has an expected ife of 4 years with after-tax cash inflows of $4,000 at the end of each of the next 4 years. The firm's WACCis 12%. typical average-risk a. the projects cannot be repeated, which project should be selected if Crockett uses NPV as its criterion for project selection? Project Selectv should be selected. b. Assume that the projects can be repeated and that there are no anticipated changes in the cash fows. Use the replacement chain analysis to determine the NPV of the project selected. Do not round intermediate calculations. Round your answer to the nearest cent. Since Project Seect s extended NPV-S R should be selected over Project Selectwith an NPV-$ C Make the same assumptions as in part b. Using the equivalent annual annuity (EAA) method, what is the EAA of the project selected? Project-Select-vshould be selected
Crockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial after-tax investment of $10,000 ana the firm. Project A has an expected ife of 2 years with after-tax cash inflows of $6,000 and $9,000 at the end of Years 1 and 2, respectively. Project B has an expected ife of 4 years with after-tax cash inflows of $4,000 at the end of each of the next 4 years. The firm's WACCis 12%. typical average-risk a. the projects cannot be repeated, which project should be selected if Crockett uses NPV as its criterion for project selection? Project Selectv should be selected. b. Assume that the projects can be repeated and that there are no anticipated changes in the cash fows. Use the replacement chain analysis to determine the NPV of the project selected. Do not round intermediate calculations. Round your answer to the nearest cent. Since Project Seect s extended NPV-S R should be selected over Project Selectwith an NPV-$ C Make the same assumptions as in part b. Using the equivalent annual annuity (EAA) method, what is the EAA of the project selected? Project-Select-vshould be selected
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Crockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial after-tax investment of $10,000 and are typical average-risk projects for
the firm. Project A has an expected ife of 2 years with after-tax cash inflows of $6,000 and $9,000 at the end of Years 1 and 2, respectively. Project B has an expected life of 4 years
with after-tax cash inflows of $4,000 at the end of each of the next 4 years. The firm's WACC is 12%.
a. If the projects cannot be repeated, which project should be selected if Crockett uses NPV as its criterion for project selection?
Project Select v should be selected.
b. Assume that the projects can be repeated and that there are no anticipated changes in the cash flows. Use the replacement chain analysis to determine the NPV of the
project selected. Do not round intermediate calculations. Round your answer to the nearest cent.
Since Project Select. vs extended NPV -$
it should be selected over Project Select v with an NPV =$
C. Make the same assumptions as in part b. Using the equivalent annual annuity (EAA) method, what is the EAA of the project selected?
Project Sect- V should be selected.
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