IO-16A. (Unequal lives ranking problem) The B. T Knight Corporation is considering two mutually exclusive pieces of machinery that perform the same task. The two alternatives available provide the following set of after-tax net cash flows:

Equipment A has an expected life of three years, whereas equipment B has an expected life of nine years. Assume a required rate of return of 15 percent.

a. Calculate each project's payback period.

b. Calculate each project's net present value.

c. Calculate each project's internal rate of return.

d. Are these projects comparable?

e. Compare these projects using replacement chains and EAA. Which project should be selected? Support your recommendation.

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EQUIPMENT A EQUIPMENT B -$20,000 6,625 YEAR 0 -$20,000 1 12,590 23 12,590 12,590 4 5 6 7 8 9 6,625 6,625 6,625 6,625 6,625 6,625 6,625 6,625