A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash...

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Finance

A firm has two mutually exclusive investment projects toevaluate. The projects have the following cash flows:
Time Cash Flow X Cash Flow Y
0 -$90,000 -$75,000
1 35,000 30,000
2 60,000 30,000
3 70,000 30,000
4 - 30,000
5 - 10,000
Projects X and Y are equally risky and may be repeatedindefinitely. If the firm’s WACC is 6%, what is the EAA of theproject that adds the most value to the firm? Do not roundintermediate calculations. Round your answer to the nearestdollar.
A.) Choose Project X , whose EAA = $

Answer & Explanation Solved by verified expert

3.9 Ratings (512 Votes)

Equivalent Annual Annuity EAA Project X Year Annual Cash Flow Present Value factor at 6 Present Value of Cash Flow 1 35000 0943396 3301887 2 60000 0889996 5339979 3 70000 0839619 5877335 TOTAL 2673012 14519200 Net Present Value NPV See Answer

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A firm has two mutually exclusive investment projects toevaluate. The projects have the following cash flows:TimeCash Flow XCash Flow Y0-$90,000-$75,000135,00030,000260,00030,000370,00030,0004-30,0005-10,000Projects X and Y are equally risky and may be repeatedindefinitely. If the firm’s WACC is 6%, what is the EAA of theproject that adds the most value to the firm? Do not roundintermediate calculations. Round your answer to the nearestdollar.A.) Choose Project X , whose EAA = $

Time	Cash Flow X	Cash Flow Y
0	-$90,000	-$75,000
1	35,000	30,000
2	60,000	30,000
3	70,000	30,000
4	-	30,000
5	-	10,000