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You are evaluating two mutually exclusive projects. The cash flows for each are:

  1. You are evaluating two mutually exclusive projects.  The cash flows for each are:

Project A                      Project B

            Year 0               ($60,000)                      ($85,000)

            Year 1               $20,000                        $22,000

            Year 2               $35,000                        $25,000

            Year 3               $20,000                        $30,000

            Year 4               $25,000                        $25,000

            Year 5                                                   $15,000

            Year 6                                                   $10,000

            Year 7                                                   $10,000

            Year 8                                                   $10,000

Assume that, if needed, each project is repeatable with no change in cash flows.  Your cost of capital is 13%.

  1. Using the replacement chain approach, which project would you chose to invest in?
  1. Using the equivalent annual annuity approach, which project would you chose to invest in?

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jeff jeffy answered 1 year ago
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