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Southampton Inc. is considering the replacement of its old, fully depreciated machine. Two new projects are available: Project L, which has a cost of $100,000,
Southampton Inc. is considering the replacement of its old, fully depreciated machine. Two new projects are available: Project L, which has a cost of $100,000, a 3-year expected, and after-tax cash flows of $60,000 per year, and Project J, which has a cost of $320,000, a 6-year life, and after-tax cash flows of $83,000 per year. Assume that both projects can be repeated, and that machine prices are not expected to rise. Assume the companys WACC is 12%. Which Project would you accept if they are mutually exclusive? *
a. Project L since EAAL > EAAJ.
b. Project J since EAAL < EAAJ.
c. Both projects since EAA of both projects is positive.
d. Neither project.
e. None of the above
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