Answered step by step
Verified Expert Solution
Question
1 Approved Answer
7. Unequal project lives Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy Corp. will have the opportunity
7. 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 12%? Cash Flow Project B Year 0: Project A Year 0: Year 1: Year 2: Year 3: -$45,000 10,000 Year 1: -$20,000 11,000 17,000 16,000 Year 2: Year 3: Year 4: 17,000 16,000 15,000 14,000 13,000 Year 5: Year 6: $11,104 $9,254 O $10,487 $12,338 $13,572 Galaxy Corp. is considering a four-year project that has a weighted average cost of capital of 12% and a NPV of $29,567. Galaxy Corp. can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project? O $12,168 O $9,734 $11,194 O $10,221 O $11,681
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started