Question

A firm needs to estimate the equivalent annual annuity (EAA) of two projects, since these projects can be repeated indefinitely. Project X requires an intial investment of 31,000 today and is expected to generate annual cash flows of 11,000 for the next 21 years. Project Y requires an intial investment of 120,000 and is expected to generate monthly cash flows of 1,800 for the next 15 years. The cost of capital is 10%. The ____ has the highest EAA, which is ____. A.) Project Y ; 6,245 B.) Project Y ; 7,416 C.) Project X; 6,620 D.) Project X; 7,416 E.) Project X; 7,786

Answer #1

First calculate NPV of X

N = 21, FV = 0, PMT = 11,000, rate = 10%

Use PV function in Excel

present value of inflow = 95,135.64

NPV = 95,135.64 - 31,000 = 64,135.54

nw calculate EAA

PV = 64,135.54, FV = 0, N = 21, rate = 10%

Use PMT function in Excel

EAA of X = 7416

First calculate NPV of Y

N = 180, FV = 0, PMT = 1800, rate = 10%/12

Use PV function in Excel

present value of inflow = 167,503.39

NPV = 167,503.39 - 120,000 = 47,503.39

nw calculate EAA

PV = 47,503.39, FV = 0, N = 15, rate = 10%

Use PMT function in Excel

EAA of Y = 6245

Answer: D.) Project X; 7,416

A firm needs to estimate the Equivalent Annual Annuity (EAA) of
two projects can be repeated indefinitiley. Project X requires an
intial investment of 46,000 today and is expected to generate
annual cash flows of 12,000 for the next 24 years. Project Y
requirs an initial investment of 170,000 and is expected to
generate monthly cash flows of 2,800 for the next 10 years. The
cost of capital is 12%. The ____ has the highest EAA, which is ____
A.)...

14) A firm needs to estimate the equivilent annual annuity (EAA)
of two projects, since these projects can be repeated indefinitely.
Project X requires an initial investment of $41,000 today and is
expected to generate annual cash flows of $12,000 for the next 26
years. Project Y requires an initial investment of $200,000 and is
expected to generate monthly cash flows of $2,900 for the next 13
years. The cost of capital is 7%. The _____ has the highest EAA,...

A firm needs to decide between two mutually exclusive projects.
Project Alpha requires an initial investment of 50,000 today and is
expected to generate cash flows of 51,000 for the next 3 years.
Project Beta requires an intial investment of 85,000 and is
expected to generate cash flows of 49,700 for the next 6 years. The
cost of capital is 6%. The projects can be repeated with no charge
in cash flows. What is the NPV of the project that...

A firm needs to decide between two mutually exclusive projects.
Project Alpha requires an initial investment of $37,000 today and
is expected to generate cash flows of $31,000 for the next 4 years.
Project Beta requires an initial investment of $92,000 and is
expected to generate cash flows of $36,400 for the next 8 years.
The cost of capital is 10%. The projects can be repeated with no
change in cash flows. What is the NPV of the project that...

18) a firm needs to decide between two mutually exclusive
projects. Porject Alpha requires an initial investment of $29,000
today and is expected to generate cash flow of $43,000 for the next
3 years. Project Beta requires an initial investment of $60,000 and
is expected to generate cash flows of $45,000 for the next 6 years.
The cost of capital is 11%. The projects can be repeated with no
change in cash flows. What is the NPV of the project...

Your firm is considering two projects. Your boss asked you to
use the Equivalent Annual Annuity method. Project A has an expected
life of seven years, will cost $50,000,000, and will produce net
cash flows of $12,000,000 each year. Project B has a life of
fourteen years, will cost $60,000,000, and will produce net cash
flows of $10,000,000 each year. The firm’s cost of capital is 12%.
What is the equivalent annual annuity for each project? Which
project should the...

Project X and Project Y are two mutually exclusive projects.
Project X requires an initial outlay of $38,000 and generates a net
cash flow of $14,000 per year for six years. Project Y requires an
initial outlay of $52,000, and will generate cash flows of $15,300
per year for eight years. Which project should be chosen and why?
(Assume that the discount rate for both projects is 10
percent).
A. Project X because Project X has
a larger NPV than Project...

You are the finance manager for your company. You and your team
have been analysing two mutually exclusive projects. The first
project initially costs $1,000 and will return cash flows of $200
per year for the next six years. The second project initially costs
$1,500 and will return $600 per year for the next three years.
The method that would not be correct when comparing these two
projects is:
A. Calculate the net present value of each project over a...

ABC Telecom has to choose between two mutually exclusive
projects. If it chooses project A, ABC Telecom will have the
opportunity to make a similar investment in three years. However,
if it chooses project B, it will not have the opportunity to make a
second investment. The following table lists the cash flows for
these projects. If the firm uses the replacement chain (common
life) approach, what will be the difference between the net present
value (NPV) of project A...

Platinum, Inc. is considering two mutually exclusive projects, X
and Y. Project X costs $95,000 today and is expected to generate
$65,000 in year one and $75,000 in year two. Project Y costs
$120,000 and is expected to generate $64,000 in year one, $67,000
in year two, $56,000 in year three, and $45,000 in year four. The
firm's investors require a rate of return of 15% and the weighted
average cost of capital is 12%. What is the equivalent annual...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 8 minutes ago

asked 19 minutes ago

asked 49 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago