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 T -$105 million $62 million $62 million F -$105 million $33 million $33 million $33 million $33 million Assuming a WACC of 7.5%, use the replacement chain approach (RCA) to compare the projects and pick the better choice, given repetition. Note that the investment in project T rises by 7% when repeated, but the other cash flows stay the same. Project T is better as its NPV is higher by $89,657 O Project F is better as its NPV is higher by $89,657 O Project T is better as its NPV is higher by $797,274 O Project F is preferable without repetition, and T is preferable with repetition O Project F is better as its NPV is higher by $797,274

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 T -$105 million $62 million $62 million F -$105 million $33 million $33 million $33 million $33 million Assuming a WACC of 7.5%, use the replacement chain approach (RCA) to compare the projects and pick the better choice, given repetition. Note that the investment in project T rises by 7% when repeated, but the other cash flows stay the same. Project T is better as its NPV is higher by $89,657 O Project F is better as its NPV is higher by $89,657 O Project T is better as its NPV is higher by $797,274 O Project F is preferable without repetition, and T is preferable with repetition O Project F is better as its NPV is higher by $797,274

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Description: Consider two projects, T and F, which are mutually exclusive, have unequal lives, and arerepeatable. Their cash flows are depicted in the table below:Project Year OYear 1Year 2Year 3Year 4T-$105 million$62 million$62 millionF-$105 million$33 million

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

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