Question

Johnson Jets is considering two mutually exclusive projects. Project A has an up-front cost of $124,000 (CF₀ = -124,000), and produces positive after-tax cash inflows of $30,000 a year at the end of each of the next six years. Project B has an up-front cost of $59,000(CF₀ = -59,000) and produces after-tax cash inflows of $20,000 a year at the end of the next four years. Assuming the cost of capital is 10.5%,
1. Compute the equivalent annual annuity of project A in box 1. Round the EAA to a whole dollar without the dollar sign or comma, e.g., 3452 (non-negative number)
2. Compute the equivalent annual annity of project B in box 2. The same format as box 1.
3. Decide which project to undertake in box 3, either Project A or Project B.

Question 18 options:

Blank # 1
Blank # 2
Blank # 3

Answer 1