KOMH Blankets Inc. is considering two mutually exclusive projects. Both projects require an initial after-tax investment of $89,000 and are typical average-risk projects for the firm. Project A has an expected life of 3 years with after-tax cash inflows of $25,000 at the end of years 1 and 2 and $75,000 at the end of Year 3. Project B has an expected life of 9 years with after-tax cash inflows of $18,500 at the end of each of the next 9 years. The firm's WACC is 13%. If the projects cannot be repeated, which project should be selected if KOMH Blankets uses NPV as its criterion for project selection (A or B)? Blank 1 Assume that the projects can be repeated and that there are no anticipated changes in the cash flows. Using the replacement chain analysis, what is the NPV of Project A Extended? $14,515.00 If the projects can be repeated, which project should be selected (A or B)? Project A Using the equivalent annual annuity (EAA) method, which project should you select (A or B)? Blank 4 What is the EAA of the project selected? Blank 5 Blank 1 Add your answer Blank 2 $14,515.00 Blank 3 Project A
KOMH Blankets Inc. is considering two mutually exclusive projects. Both projects require an initial after-tax investment of $89,000 and are typical average-risk projects for the firm. Project A has an expected life of 3 years with after-tax cash inflows of $25,000 at the end of years 1 and 2 and $75,000 at the end of Year 3. Project B has an expected life of 9 years with after-tax cash inflows of $18,500 at the end of each of the next 9 years. The firm's WACC is 13%. If the projects cannot be repeated, which project should be selected if KOMH Blankets uses NPV as its criterion for project selection (A or B)? Blank 1 Assume that the projects can be repeated and that there are no anticipated changes in the cash flows. Using the replacement chain analysis, what is the NPV of Project A Extended? $14,515.00 If the projects can be repeated, which project should be selected (A or B)? Project A Using the equivalent annual annuity (EAA) method, which project should you select (A or B)? Blank 4 What is the EAA of the project selected? Blank 5 Blank 1 Add your answer Blank 2 $14,515.00 Blank 3 Project A
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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![**Project Evaluation Exercise: KOMH Blankets Inc.**
KOMH Blankets Inc. is evaluating two mutually exclusive projects. Each requires an initial after-tax investment of $89,000. Both are typical average-risk projects for the company. Below are the project details:
- **Project A**: Expected life of 3 years with after-tax cash inflows of $25,000 at the end of years 1 and 2, and $75,000 at the end of year 3.
- **Project B**: Expected life of 9 years with after-tax cash inflows of $18,500 at the end of each of the next 9 years.
The firm's Weighted Average Cost of Capital (WACC) is 13%.
**Scenario 1**: If the projects cannot be repeated, and KOMH Blankets uses Net Present Value (NPV) as its criterion for project selection, which project should be selected (A or B)?
- **Answer**: [Blank 1]
**Scenario 2**: Assume projects can be repeated without changes in cash flows. Using the replacement chain analysis, the NPV of Project A when extended is $14,515.00.
- If the projects can be repeated, which project should be selected (A or B)?
- **Answer**: Project A
- Using the equivalent annual annuity (EAA) method, which project should be selected (A or B)?
- **Answer**: [Blank 4]
- What is the EAA of the project selected?
- **Answer**: [Blank 5]
Please provide your answers in the designated blanks.
**Answer Spaces**:
- Blank 1: [Add your answer]
- Blank 2: $14,515.00
- Blank 3: Project A
- Blank 4: [Add your answer]
- Blank 5: [Add your answer]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbcd2d27a-56f0-42f1-82ee-dc77a8a42b09%2F13d47ef9-b35f-4ba3-8609-6466ca5197fd%2Forlj7c_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Project Evaluation Exercise: KOMH Blankets Inc.**
KOMH Blankets Inc. is evaluating two mutually exclusive projects. Each requires an initial after-tax investment of $89,000. Both are typical average-risk projects for the company. Below are the project details:
- **Project A**: Expected life of 3 years with after-tax cash inflows of $25,000 at the end of years 1 and 2, and $75,000 at the end of year 3.
- **Project B**: Expected life of 9 years with after-tax cash inflows of $18,500 at the end of each of the next 9 years.
The firm's Weighted Average Cost of Capital (WACC) is 13%.
**Scenario 1**: If the projects cannot be repeated, and KOMH Blankets uses Net Present Value (NPV) as its criterion for project selection, which project should be selected (A or B)?
- **Answer**: [Blank 1]
**Scenario 2**: Assume projects can be repeated without changes in cash flows. Using the replacement chain analysis, the NPV of Project A when extended is $14,515.00.
- If the projects can be repeated, which project should be selected (A or B)?
- **Answer**: Project A
- Using the equivalent annual annuity (EAA) method, which project should be selected (A or B)?
- **Answer**: [Blank 4]
- What is the EAA of the project selected?
- **Answer**: [Blank 5]
Please provide your answers in the designated blanks.
**Answer Spaces**:
- Blank 1: [Add your answer]
- Blank 2: $14,515.00
- Blank 3: Project A
- Blank 4: [Add your answer]
- Blank 5: [Add your answer]
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