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Wisconsin Dairy Inc. is deciding on its capital budget for the upcoming year. Among the projects being considered are two machines, W and WW. W
- Wisconsin Dairy Inc. is deciding on its capital budget for the upcoming year. Among the projects being considered are two machines, W and WW. W costs $500,000 and will produce expected after-tax cash flows of $300,000 during the next 2 years. WW also costs $500,000, but it will produce after-tax cash flows of $165,000 during the next 4 years. Both projects have a 10% WACC.
- If the projects are independent and not repeatable, which project(s) should the company accept?
- If the projects are mutually exclusive but are not repeatable, which project should the company accept? Assume that the projects are mutually exclusive and can be repeated indefinitely.
- Use the replacement chain method to determine the NPV of the project selected.
- Use the equivalent annual annuity method to determine the annuity of the project selected.
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