Question
1. A firm is starting a new project that will cost $200,000. It is projected to last 5 years and to generate cash flows of
1. A firm is starting a new project that will cost $200,000. It is projected to last 5 years and to generate cash flows of $50,000, $70,000, $90,000, $50,000 and $30,000 from Years 1 through 5 respectively. If the discount rate is 10%, what is the EAA of this project? Round to the nearest penny. Do not include any unit such as $, %, etc.
2. Use the following information to answer next three questions:
IO PI IRR LIFE
Project 1 $300,000 1.12 14.38% 15 years
Project 2 $150,000 1.08 13.32% 6 years
Project 3 $100,000 1.20 16.46% 3 years
Assume that the cost of capital is 12%.
If the firm has a maximum capital expenditures budget of $450,000, and if the projects are mutually exclusive, and repeatable, which project(s) should be accepted?
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