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6. The equivalent annual annuity approach - Evaluating projects with unequal lives Aa Aa E Evaluating projects with unequal lives Bidget Corp. is a Canadian firm that wants to expand its business internationally. It is considering potential projects in both Spain and Ukraine, and the Spanish project is expected to take six years, whereas the Ukrainian project is expected to take only three years. However, the firm plans to repeat the Ukrainian project after three years. These projects are mutually exclusive, so Bidget Corp.'s CFO plans to use the equivalent annual annuity approach to analyze both projects. The expected cash flows for both projects follow: If Bidget Corp.'s cost of capital is 10%, what is the NPV of the Spanish project? Project: Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: Spanish -$1,120,000 $370,000 $390,000 $420,000 $330,000 $220,000 $95,000 Project: Ukrainian Year 0: -$490,000 Year 1: $250,000 Year 2: $265,000 Year 3: $275,000 $256,359 $296,837 $283,345 $269,852 If Bidget Corp.'s cost of capital is 10%, what is the NPV of the Ukrainian project? O $162,892.56 O $116,172.05 O $116,848.23 $120,078.89 What is the equivalent annual annuity (EAA) for the Ukraine project? $13,522.02 O $51,020.39 $42,165.61 O $65,501.51 What is the equivalent annual annuity (EAA) for the Spanish project? $56,936.13 $37,060.55 $61,960.02 $68,892.72 If the CFO uses the EAA approach to decide which project to undertake, he should choose the EAA. project because it has the

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