Question
You are evaluating two mutually exclusive projects. One will cost $400,000 initially and will pay $125,000 each year for the next 5 years. The other
You are evaluating two mutually exclusive projects. One will cost $400,000 initially and will pay $125,000 each year for the next 5 years. The other will cost $475,000 initially but will pay $100,000 for the next 10 years. The firm’s cost of capital is 15%.
- Compute the NPV of each project? Which project has the highest NPV?
- Use the replacement chain approach to compute the NPV of each. Which project now appears best?
- Use the equal annual annuity method to select between the two projects. Does this result agree with what you found in part b?
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Financial Management for Public Health and Not for Profit Organizations
Authors: Steven A. Finkler, Thad Calabrese
4th edition
133060411, 132805669, 9780133060416, 978-0132805667
