Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3 . Unequal project lives Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy Corp. will have the

3 . Unequal project lives Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy Corp. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 14%? Cash Flow Project A Project B Year 0: $15,000 Year 0: $40,000 Year 1: 9,000 Year 1: 9,000 Year 2: 15,000 Year 2: 13,000 Year 3: 14,000 Year 3: 12,000 Year 4: 11,000 Year 5: 10,000 Year 6: 9,000 $17,164 $21,455 $18,237 $13,946 $16,091 Galaxy Corp. is considering a four-year project that has a weighted average cost of capital of 13% and a NPV of $89,567. Galaxy Corp. can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project? $31,618 $27,101 $33,123 $34,629 $30,112

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance

Authors: E. Thomas Garman, Raymond Forgue

8th Edition

0618471421, 9780618471423

More Books

Students also viewed these Finance questions

Question

How do changes in product mix affect contribution margin variances?

Answered: 1 week ago