Question
Evaluating projects with unequal lives Tasty Tuna Corporation is a U.S. firm that wants to expand its business internationally. It is considering potential projects in
Evaluating projects with unequal lives
Tasty Tuna Corporation is a U.S. firm that wants to expand its business internationally. It is considering potential projects in both Germany and Canada, and the German project is expected to take six years, whereas the Canadian project is expected to take only three years. However, the firm plans to repeat the Canadian project after three years. These projects are mutually exclusive, so Tasty Tuna Corporations CFO plans to use the replacement chain approach to analyze both projects. The expected cash flows for both projects follow:
| Project: | German |
|---|---|
| Year 0: | $975,000 |
| Year 1: | $350,000 |
| Year 2: | $370,000 |
| Year 3: | $390,000 |
| Year 4: | $320,000 |
| Year 5: | $115,000 |
| Year 6: | $80,000 |
| Project: | Canadian |
|---|---|
| Year 0: | $490,000 |
| Year 1: | $250,000 |
| Year 2: | $265,000 |
| Year 3: | $275,000 |
If Tasty Tuna Corporations cost of capital is 10%, what is the NPV of the German project?
$304,819
$277,108
$235,542
$249,397
Assuming that the Canadian projects cost and annual cash inflows do not change when the project is repeated in three years and that the cost of capital will remain at 10%, what is the NPV of the Canadian project, using the replacement chain approach?
$285,276
$271,012
$342,331
$299,540
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The Everything Guide To Day Trading
Authors: David Borman
1st Edition
1440506213, 978-1440506215
