Deck 24: Comparing Mutually Exclusive Projects with Unequal Lives

Question 1

Mulroney Corp.is considering two mutually exclusive projects.Both require an initial investment of $10,000,and their risks are average for the firm.Project X has an expected life of 2 years with after-tax cash inflows of $5,300 and $7,000 at the end of Years 1 and 2,respectively.Project Y has an expected life of 4 years with after-tax cash inflows of $3,500 at the end of each of the next 4 years.The firm's WACC is 8.60%.Use the replacement chain to determine the NPV of the most profitable project.Do not round your intermediate calculations.

A) $1,597.44
B) $1,220.69
C) $1,868.71
D) $1,296.04
E) $1,507.02

Answer 1

E

Question 2

Wilson Co.is considering two mutually exclusive projects.Both require an initial investment of $10,500,and their risks are average for the firm.Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,785 at the end of Years 1 and 2,respectively.Project Y has an expected life of 4 years with after-tax cash inflows of $4,750 at the end of each of the next 4 years.The firm's WACC is 11.00%.Determine the equivalent annual annuity of the most profitable project.Do not round your intermediate calculations.

A) $1,474.82
B) $1,351.92
C) $1,543.10
D) $1,365.57
E) $1,570.41

Answer 2

D