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A company has a choice between two mutually exclusive projects, A and B, with unequal lives. The table below contains information about the projects: The
A company has a choice between two mutually exclusive projects, A and B, with unequal lives. The table below contains information about the projects: The company's Minimum Acceptable Rate of Return (MARR), also known as its cost of capital, is 11%. Calculate the Net Present Value (NPV) of each project assuming that it will NOT be replaced at the end of its useful life. If Project A were replaced with an identical Project A at times 6, 12, 18, 24, 30, etc., this would be the equivalent of receiving the NPV of Project A calculated in Part 1 above at times 0, 6, 12, 18, 24, etc. What single discount rate would you use to find the Present Value (PV) of these payments (six years apart), and what is the PV of these payments over an infinite time horizon? If Project B were replaced with an identical Project B at times 10, 20, 30, 40, 50, etc., this would be the equivalent of receiving the NPV of Project B calculated in Part 1 above at times 0, 10, 20, 30, 40, etc. What single discount rate would you use to find the Present Value (PV) of these payments (ten years apart), and what is the PV of these payments over an infinite time horizon? Now find the net Equivalent Uniform Benefit (EUB) or net Equivalent Uniform Cost (EUC) for Project A and for Project B over an infinite time horizon. Using the net EUB (EUC) of Part 4, which project is better? Using the NPV's calculated in Parts 2 and 3, which project is better? Of what use were the NPV's calculated in
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