Question

You are trying to determine which of two mutually exclusive projects to undertake. Project Adam has an initial outlay of $10,000, an NPV of $4,392.15, an IRR of 11.33%, and an EAA of $1,158.64. Project Eve has an initial outlay of $15,000, an NPV of $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:

You should do both projects because they have positive NPVs.

You should do Project Adam because it has a higher EAA.

You should do Project Eve because it has a higher NPV.

You should do Project Adam because it has a higher IRR.

You should do neither projects since neither of them adds value to you.

Answer #1

According to net present value and internal rate of return, both the project has to be accepted but when we are adopting the equivalent annual annuity, then it can be seen that project Adam will be having a higher equivalent annual annuity and it will mean that this project Adam isis using the resources efficiently and it has to be selected because it will have the higher EAA.

So it can be said that project Adam should be selected because of higher EAA

Rest of the options are not reflective of the true scenarios.

Correct answer will be option ( B)You should do Project Adam because it has a higher EAA

You are trying to determine which of two mutually exclusive
projects to undertake. Both projects have the same initial outlay.
Project Adam has an NPV of $4,392.15, an IRR of 11.33%, and an EAA
of $1,158.64. Project Eve has an NPV of $5,833.73, an IRR of 9.88%,
and an EAA of $1,093.50. The cost of capital for both projects is
9%, the projects have different lives, and the projects are not
repeatable. What should you do?
You should do Project...

A company s considering a project which requires the initial
outlay of $300,000 which includes both an after-tax salvage from
the old asset of $12,000 and an additional working capital
investment of $8,000. The 12-year project is expected to generate
annual incremental cash flows of $54,000 and have an expected
terminal value at the end of the project of $20,000. The cost of
capital is 15 percent, and the company's marginal tax rate is 40
percent. Calculate the net present...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%: Project...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%:
A....

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $10000. Its projected net
cash flows are $800, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$14000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. The
firm’s cost of capital is 6.00%. Choose 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...

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 considering two mutually exclusive projects. Based upon
risk, the appropriate discount rate for both projects is 10%. The
first project has an IRR of 22% and an NPV of $22,432. The second
project has an IRR of 12% and an NPV of $24,456. Which project
should you select?
accept both projects since both are acceptable.
pick the project with the shorter payback period.
choose the project with the higher NPV.
unable to determine due to insufficient information.
choose...

Arrow Electronics is considering Projects S and L which are
mutually exclusive, equally risky, and not repeatable. Project S
has an initial cost of $1 million and cash inflows of $370,000 for
4 years, while Project L has an initial cost of $2 million and cash
inflows of $720,000 for 4 years. The CEO wants to use the IRR
criterion, while the CFO favors the NPV method, using a WACC of
8.02%. what is the difference between the npvs for...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%:
The...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 3 minutes ago

asked 6 minutes ago

asked 17 minutes ago

asked 22 minutes ago

asked 30 minutes ago

asked 31 minutes ago

asked 35 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago