Question

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 and project B, assuming that both projects have a weighted average cost of capital of 14%?

Cash Flow |
|||
---|---|---|---|

Project A | |||

Year 0: | –$20,000 | Year 0: | –$40,000 |

Year 1: | 11,000 | Year 1: | 8,000 |

Year 2: | 17,000 | Year 2: | 15,000 |

Year 3: | 16,000 | Year 3: | 14,000 |

Year 4: | 13,000 | ||

Year 5: | 12,000 | ||

Year 6: | 11,000 |

$15,712

$10,998

$9,427

$17,283

$14,141

ABC Telecom is considering a three-year project that has a weighted average cost of capital of 12% and a NPV of $49,876. ABC Telecom can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project?

$19,728

$24,919

$20,766

$25,958

$17,651

Answer #1

Globex Corp. has to choose between two mutually exclusive
projects. If it chooses project A, Globex Corp. 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...

Globex Corp. has to choose between two mutually exclusive
projects. If it chooses project A, Globex Corp. 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...

4. Unequal project lives
Smith and Co. has to choose between two mutually exclusive
projects. If it chooses project A, Smith and Co. 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...

Consider the case of Blue Hamster Manufacturing Inc.:
Blue Hamster Manufacturing Inc. has to choose between two
mutually exclusive projects. If it chooses project A, Blue Hamster
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:
Cash
Flows
Project
A
Project
B
Year
0:
–$10,000
Year
0:
–$40,000
Year
1:...

QUESTION 20
For this and the next 3 questions. Consider the following
MUTUALLY EXCLUSIVE projects. Cost of capital is 10%. Calculate
IRR.
Year
Project A
Project B
0
-40,000
-20,000
1
8,000
7,000
2
14,000
13,000
3
13,000
12,000
4
12,000
5
11,000
6
10,000
IRR (A) = 17.47%. IRR(B) = 25.20%
IRR (A) = 17.77%. IRR(B) = 25.20%
IRR (A) = 17.47%. IRR(B) = 20%
None of the above is completely correct
1 points
QUESTION 21
Calculate NPV...

You are trying to determine which of two mutually exclusive
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$5,833.73, an IRR of 9.88%, and an EAA of $1,093.50. The cost of
capital for both projects is 9%, and the projects have different
lives. If the projects are repeatable, then:
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