7. Unequal project lives

Consider the case of Fuzzy Button Clothing Company:

Fuzzy Button Clothing Company has to choose between two mutually exclusive projects. If it chooses project A, Fuzzy Button 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:

Cash Flows
Project A		Project B
Year 0:	$20,000	Year 0:	$40,000
Year 1:	11,000	Year 1:	8,000
Year 2:	17,000	Year 2:	16,000
Year 3:	16,000	Year 3:	15,000
		Year 4:	12,000
		Year 5:	11,000
		Year 6:	10,000

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 Bassuming that both projects have a weighted average cost of capital of 10%?

$12,566

$15,708

$9,425

$10,210

Fuzzy Button Clothing Company is considering a three-year project that has a weighted average cost of capital of 10% and a NPV of $-8,234. Fuzzy Button can replicate this project indefinitely. The equivalent annual annuity (EAA) for this project is ____?.