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 O Year 1 Year 2 Year 3 Year 4 Year 5 T -$75 million $45 million $45 million F -$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. O Project T is better as its EAA is higher by $1.72 O Project F is better as its NPV is higher by $300,805 O Project T is better as its EAA is higher by $1,722,411 Project F is better as its EAA is higher by $300,805 Project F is better as its EAA is higher by $1.72

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 O Year 1 Year 2 Year 3 Year 4 Year 5 T -$75 million $45 million $45 million F -$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. O Project T is better as its EAA is higher by $1.72 O Project F is better as its NPV is higher by $300,805 O Project T is better as its EAA is higher by $1,722,411 Project F is better as its EAA is higher by $300,805 Project F is better as its EAA is higher by $1.72

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 11MC: In an unrelated analysis, you have the opportunity to choose between the following two mutually...

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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
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