Lakeland Ramblers is considering two mutually exclusive projects to boost their tourist revenue. Project A costs $60,000 and would produce net cash flows of $25,000 for 5 years. Project B costs $100,000 and will produce annual net cash flows of $25,000 for 10 years. If Lakeland's cost of capital is 12%, which project should be chosen using the equivalent annual annuity method?
A) Project A, as NPV is $17,941 higher
B) Project B, as NPV is $11,125 higher
C) Project A, as NPV is $28,383 higher
D) Project B, as NPV is $21,567 higher

Question

Quizplus · Accepted Answer

Project A has a higher equivalent annual annuity ($22,868) than Project B ($21,567), so Project A should be chosen.

Lakeland Ramblers Is Considering Two Mutually Exclusive Projects to Boost