Question
Dumb and Dumber Development Company has two mutually exclusive investment projects to evaluate. Assume both projects can be repeated indefinitely. The following cash flows are
Dumb and Dumber Development Company has two mutually exclusive investment projects to evaluate. Assume both projects can be repeated indefinitely. The following cash flows are associated with each project
Year | Project A Cash Flow | Project B Cash Flow |
0 | -$100,000 | -$70,000 |
1 | 30,000 | 30,000 |
2 | 50,000 | 30,000 |
3 | 70,000 | 30,000 |
4 | -- | 30,000 |
5 | -- | 10,000 |
The project types are equally risky and the firms cost of capital is 12 percent. What is the EAA of the higher valued project? (Round your final answer to the nearest whole dollar.)
a. $6,857
b. $7,433
c. $11,325
d. $16,470
e. None of the above
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