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The Acme Widget Company is considering two mutually exclusive projects with the following after-tax net cash flows: Initial Outlay Inflow year 1 Inflow year 2
The Acme Widget Company is considering two mutually exclusive projects with the following after-tax net cash flows: Initial Outlay Inflow year 1 Inflow year 2 Inflow year 3 Inflow year 4 Inflow year 5 Inflow year 6 Project A -$40,000 20,000 20,000 20,000 Project B -$50,000 16,000 16,000 16,000 16,000 16,000 16,000 Project A has an expected life of three years and Project B has an expected life of six years. Assume a required rate of return of 10 percent. a) Calculate each project's net present value. (6 points) b) Are these projects comparable? Why or why not? (4 points) c) Compare these projects using the replacement chain approach. Which project should be selected? Support your recommendation. (8 points)
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