Question

Crossborder, Inc. is considering Project A and Project​ B, which are two mutually exclusive projects with unequal lives. Project A is an eight−year project that has an initial outlay or cost of​ $140,000. Its future cash inflows for years 1 through 8 are the same at​ $36,500. Project B is a six−year project that has an initial outlay or cost of​ $160,000. Its future cash inflows for years 1 through 6 are the same at​ $48,000. Crossborder uses the equivalent annual annuity​ (EAA) method and has a discount rate of​ 13%. Which​ project(s), if​ any, will Crossborder​ accept?

Answer 1

project B

Step-by-step explanation:

equivalent annual annuity​ (EAA) method = r(NPV) / [1 - (1/(1 + r)^n)]

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Project A

Cash flow in year 0 = $-140,000

Cash flow in year 1 - 8 = $36,500

I = 13

NPV =

35,155.12 7325.86

31,882.39 =