Wilson Co.is considering two mutually exclusive projects.Both require an initial investment of $9,100 at t = 0.Project X has an expected life of 2 years with after-tax cash inflows of $5,500 and $8,200 at the end of Years 1 and 2,respectively.In addition,Project X can be repeated at the end of Year 2 with no changes in its cash flows.Project Y has an expected life of 4 years with after-tax cash inflows of $4,800 at the end of each of the next 4 years.Each project has a WACC of 11%.What is the equivalent annual annuity of the most profitable project? Do not round intermediate calculations.
A) $2,502
B) $1,885.50
C) $1,553.77
D) $1,680.15
E) $1,465.82

Question

Quizplus · Accepted Answer

WACC = 11%
? 11ea856c_8b93_2575_9aec_fb473f56d722_TB1222_00 ?
Project X,NPV = $2,510.26
? 11ea856c_8b93_4c86_9aec_0575353bbf2e_TB1222_00 ? 11ea856c_8b93_4c87_9aec_1176f1f93645_TB1222_00 ?
Project Y,NPV = $5,791.74
? 11ea856c_8b93_4c88_9aec_4dfc5e16b8c0_TB1222_00 ?
EAA of most profitable project,Project Y = $2,502
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Wilson CoIs Considering Two Mutually Exclusive Projects