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Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year O Year 1 Year 2 Year 3 Year 4 Year 5 T -$75 million $45 million $45 million F -$91 million $24 million $24 million $24 million $24 million $24 million Assuming a WACC of 7.5%, use the equivalent annuity approach (EAA) to compare the projects and pick the better choice, given repetition. O Project T is better as its EAA is higher by $1.72 O Project F is better as its NPV is higher by $300,805 O Project T is better as its EAA is higher by $1,722,411 Project F is better as its EAA is higher by $300,805 Project F is better as its EAA is higher by $1.72

Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year O Year 1 Year 2 Year 3 Year 4 Year 5 T -$75 million $45 million $45 million F -$91 million $24 million $24 million $24 million $24 million $24 million Assuming a WACC of 7.5%, use the equivalent annuity approach (EAA) to compare the projects and pick the better choice, given repetition. O Project T is better as its EAA is higher by $1.72 O Project F is better as its NPV is higher by $300,805 O Project T is better as its EAA is higher by $1,722,411 Project F is better as its EAA is higher by $300,805 Project F is better as its EAA is higher by $1.72

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year O Year 1 Year 2 Year 3 Year 4 Year 5 T -$75 million $45 million $45 million F -$91 million $24 million $24 million $24 million $24 million $24 million Assuming a WACC of 7.5%, use the equivalent annuity approach (EAA) to compare the projects and pick the better choice, given repetition. O Project T is better as its EAA is higher by $1.72 O Project F is better as its NPV is higher by $300,805 O Project T is better as its EAA is higher by $1,722,411 Project F is better as its EAA is higher by $300,805 Project F is better as its EAA is higher by $1.72
Transcribed Image Text:Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year O Year 1 Year 2 Year 3 Year 4 Year 5 T -$75 million $45 million $45 million F -$91 million $24 million $24 million $24 million $24 million $24 million Assuming a WACC of 7.5%, use the equivalent annuity approach (EAA) to compare the projects and pick the better choice, given repetition. O Project T is better as its EAA is higher by $1.72 O Project F is better as its NPV is higher by $300,805 O Project T is better as its EAA is higher by $1,722,411 Project F is better as its EAA is higher by $300,805 Project F is better as its EAA is higher by $1.72
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