Expected Net Cash Flows
Year Project T Project F
0 ($100,000) ($100,000)
1 75,000 40,000
2 65,000 42,000
3 — 44,000
4 — 46,000
The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 12% cost of capital.
c. Suppose you replicate Project T so that it has the same life as Project F. Which project would you choose?
NPV Project F = $29,748.59
EAA Project F = $9,794.26
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