Project Year 0 T Year 1 Year 2 $75 million $45 million $45 million Project F is better as its NPV 5300.35 het Year 3 -$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. Project T is better as its EAA. Nistor $1.72 Project F is better as its EAA is higher by $1.72 Year 4 Year 5
Project Year 0 T Year 1 Year 2 $75 million $45 million $45 million Project F is better as its NPV 5300.35 het Year 3 -$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. Project T is better as its EAA. Nistor $1.72 Project F is better as its EAA is higher by $1.72 Year 4 Year 5
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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Question
![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 0
T
Year 1
F
Year 2
$75 million $45 million $45 million
-$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.
Year 3
Project F is better as its NPV 5300.805
Project Tis better as its EAA Nighort 55.72
Project F is better as its EAA is higher by $1.72
Project T is better as its EAA is higher by $1,722.411
Year 4
Project F is better as its EAA is higher by $300.805
Year 5](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff4ebeb61-b51b-4c41-a44f-91cb6c8bb3c1%2F488e14ca-845a-4238-b45e-7f31bc76ff8e%2Fal20a4l_processed.jpeg&w=3840&q=75)
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 0
T
Year 1
F
Year 2
$75 million $45 million $45 million
-$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.
Year 3
Project F is better as its NPV 5300.805
Project Tis better as its EAA Nighort 55.72
Project F is better as its EAA is higher by $1.72
Project T is better as its EAA is higher by $1,722.411
Year 4
Project F is better as its EAA is higher by $300.805
Year 5
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