Lakeland Ramblers is considering two mutually exclusive projects to boost their tourist revenue. Project A costs $60,000 and would produce net cash flows of $25,000 for 5 years. Project B costs $100,000 and will produce annual net cash flows of $25,000 for 10 years. If Lakeland's cost of capital is 12%, which project should be chosen using the equivalent annual annuity method? a. Project A, as NPV is $17,941 higher b. Project B, as NPV is $11,125 higher c. Project B, as NPV is $21,567 higher d. Project A, as NPV is $28,383 higher
Lakeland Ramblers is considering two mutually exclusive projects to boost their tourist revenue. Project A costs $60,000 and would produce net cash flows of $25,000 for 5 years. Project B costs $100,000 and will produce annual net cash flows of $25,000 for 10 years. If Lakeland's cost of capital is 12%, which project should be chosen using the equivalent annual annuity method? a. Project A, as NPV is $17,941 higher b. Project B, as NPV is $11,125 higher c. Project B, as NPV is $21,567 higher d. Project A, as NPV is $28,383 higher
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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Lakeland Ramblers is considering two mutually exclusive projects to boost their tourist revenue. Project A costs $60,000 and would produce net cash flows of $25,000 for 5 years. Project B costs $100,000 and will produce annual net cash flows of $25,000 for 10 years. If Lakeland's cost of capital is 12%, which project should be chosen using the equivalent annual annuity method?
| a. |
Project A, as
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|
| b. |
Project B, as NPV is $11,125 higher
|
|
| c. |
Project B, as NPV is $21,567 higher
|
|
| d. |
Project A, as NPV is $28,383 higher
|
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