Question
Suppose you are faced with choosing between two mutually exclusive projects. Your boss asked you to use the Replacement Chain method. The first project offers
Suppose you are faced with choosing between two mutually exclusive projects. Your boss asked you to use the Replacement Chain method. The first project offers cash flows of $15,000 in years one and two, and $20,000 in years three, four, and five. It has an initial cost of $25,000. The second project offers cash flows of $25,000 per year for four years, and then $45,000 per year for six additional years (total project life of 10 years). It has an initial cost of $18,000. The firm has a weighted average cost of capital of 10%. Which project should the firm accept? Show your full work.
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