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A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash...

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Finance

A firm has two mutually exclusive investment projects toevaluate. The projects have the following cash flows:

TimeCash Flow XCash Flow Y
0-$90,000-$75,000
135,00030,000
260,00030,000
370,00030,000
4-30,000
5-10,000

Projects X and Y are equally risky and may be repeatedindefinitely. If the firm’s WACC is 6%, what is the EAA of theproject that adds the most value to the firm? Do not roundintermediate calculations. Round your answer to the nearestdollar.

A.) Choose Project X , whose EAA = $

Answer & Explanation Solved by verified expert
3.9 Ratings (512 Votes)
Equivalent Annual Annuity EAA Project X Year Annual Cash Flow Present Value factor at 6 Present Value of Cash Flow 1 35000 0943396 3301887 2 60000 0889996 5339979 3 70000 0839619 5877335 TOTAL 2673012 14519200 Net Present Value NPV    See Answer
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Transcribed Image Text

A firm has two mutually exclusive investment projects toevaluate. The projects have the following cash flows:TimeCash Flow XCash Flow Y0-$90,000-$75,000135,00030,000260,00030,000370,00030,0004-30,0005-10,000Projects X and Y are equally risky and may be repeatedindefinitely. If the firm’s WACC is 6%, what is the EAA of theproject that adds the most value to the firm? Do not roundintermediate calculations. Round your answer to the nearestdollar.A.) Choose Project X , whose EAA = $

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