Question
The weighted average cost of capital of Company Summer is 4%. The company is considering two mutually exclusive projects, Project A and Project B. Project
The weighted average cost of capital of Company Summer is 4%. The company is considering two mutually exclusive projects, Project A and Project B. Project life and NPV of the two projects are as follows:
| Project | Life | NPV |
| Project A | 3 years | $30 million |
| Project B | 2 years | $26 million |
The capital budget of the company is limited by capital. No matter which project is chosen, it will be replaced repeatedly when it wears out. Using the Equivalent Annual Annuity approach, evaluate to determine which project should be chosen.
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Financial Management Theory and Practice
Authors: Eugene F. Brigham, Michael C. Ehrhardt
15th edition
130563229X, 978-1305632301, 1305632303, 978-0357685877, 978-1305886902, 1305886909, 978-1305632295
