Casa Chica Is Considering Replacing a Piece of Equipment

Multiple Choice

Casa Chica is considering replacing a piece of equipment.Alternative A costs $80,000, has an eight year life and would produce net cash flows of $18,000 in each of the eight years.Alternative B costs $65,000, has a six year life and would produce net cash flows of $18,000 in each of the six years.If Chica's cost of capital is 13 percent, which alternative should be chosen using the equivalent annual annuity method?

A) Project A
B) Project B
C) Indifferent between the two projects
D) Neither, because both projects have a negative NPV