Question
1.Farmer Co. is considering Projects S and L, whose cash flows are shown below.These projects are mutually exclusive, equally risky, and repeatable. Year 01234 CF
1.Farmer Co. is considering Projects S and L, whose cash flows are shown below.These projects are mutually exclusive, equally risky, and repeatable.
Year01234
CFS -$950$600$700
CFL-$2,100$600$800$900$700
WACC:11%
One suggestion is to use the replacement chain to make the two projects equal in life by repeating Project S at end of the 2nd year.If this method is used, which project is to provide a higher NPV in the four-year term?Show the calculations.
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Principles Of Corporate Finance
Authors: Lawrence J. Gitman, Sean M. Hennessey
2nd Canadian Edition
0321452933, 978-0321452931
