7. Unequal project lives

Globo-Dharma Co. has to choose between two mutually exclusive projects. If it chooses project A, Globo-Dharma Co. 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 A		Project B
Year 0:	$17,500	Year 0:	$40,000
Year 1:	10,000	Year 1:	9,000
Year 2:	16,000	Year 2:	13,000
Year 3:	15,000	Year 3:	12,000
		Year 4:	11,000
		Year 5:	10,000
		Year 6:	9,000

$19,146

$12,764

$17,018

$23,400

$21,273

Globo-Dharma Co. is considering a five-year project that has a weighted average cost of capital of 12% and a NPV of $56,489. Globo-Dharma Co. can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project?

$15,671

$19,589

$17,238

$18,805

$13,320