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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
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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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
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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