The projected cash flows for two mutually exclusive projects are as follows:
$\begin{array}{lll}
\text { Year } & \text { Project } A & \text { Project B } \
0 & (\$ 150,000) & (\$ 200,000) \
1 & 80,000 & 40,000 \
2 & 60,000 & 50,000 \
3 & 50,000 & 50,000 \
4 & & 60,000 \
5 & & 50,000 \
6 & & 53,000
\end{array}$ If the cost of capital is 10%, does the equivalent annual annuity method give a clear indication of which project should be undertaken? Calculate the EAAs for both projects and comment on the result

Question

The projected cash flows for two mutually exclusive projects are as follows:
 $\begin{array}{lll}
\text { Year } & \text { Project } A & \text { Project B } \
0 & (\$ 150,000) & (\$ 200,000) \
1 & 80,000 & 40,000 \
2 & 60,000 & 50,000 \
3 & 50,000 & 50,000 \
4 & & 60,000 \
5 & & 50,000 \
6 & & 53,000
\end{array}$ If the cost of capital is 10%, does the equivalent annual annuity method give a clear indication of which project should be undertaken? Calculate the EAAs for both projects and comment on the result

Quizplus · Accepted Answer

The Answer of The projected cash flows for two mutually exclusive projects are as follows:
 $\begin{array}{lll}
\text { Year } & \text { Project } A & \text { Project B } \
0 & (\$ 150,000) & (\$ 200,000) \
1 & 80,000 & 40,000 \
2 & 60,000 & 50,000 \
3 & 50,000 & 50,000 \
4 & & 60,000 \
5 & & 50,000 \
6 & & 53,000
\end{array}$ If the cost of capital is 10%, does the equivalent annual annuity method give a clear indication of which project should be undertaken? Calculate the EAAs for both projects and comment on the result

The Projected Cash Flows for Two Mutually Exclusive Projects Are