17) Haley graphic designs is considering two alternative projects. both have ini

Question

17) Haley graphic designs is considering two alternative projects. both have initial cash outlays of $10,000. Project has an expected life of two years with after-tax cash inflows of $6000 and $8000 at the end of 1 and 2 years respectively. project B has an expected life of four years with after-tax cash inflows of $4000 at the end of each of the next 4 years. The firm cost of capital is 10%. using replacement chain which project would you pick?

18) Using the information from #17 use the equivalent annuity approach to decide which project is better.

Explanation / Answer

Answer: 17

Project A because of higher NPV.

Discount rate 10% Year 0 1 2 3 4 Cash Flow- Project A -10000 6000 8000 2 nd Project -10000 6000 8000 Total cash flows -10000 6000 -2000 6000 8000 NPV 3774 Cash Flow- Project B -10000 4000 4000 4000 4000 NPV 2679

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