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).  

equivalent annual cash flow for X = (initial investment/PVAF )annual cash inflow 
(38000/4.3552)+14000 
5274.79794 

equivalent annual cash flow for Y = (initial investment/PVAF )annual cash inflow 
(52000/5.3349)+15300 
5552.86322 

NPV of Equivalent annual cash flow of X = equivalent annual cash flow*PVAF at 10% for 6 Years 
5274.9195*4.3552 
22973.3294 

NPV of Equivalent annual cash flow of Y = equivalent annual cash flow*PVAF at 10% for 6 Years 
5552.911*4.3552 
24184.038 

Answer is B 
Project Y as it NPV of equivalent cash flow is more than Project X 

PVAF at 10% for 6 Years 
1(1+r)^n / r 
1(1.1)^6 / .10 
4.3552 
PVAF at 10% for 8 Years 
1(1+r)^n / r 
1(1.1)^8 / .10 
5.3349 
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