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Unformatted text preview: the decision against the shorter project. Since the projects are expected to be replicated, if we initially choose project S, it would be repeated after 2 years. However, the raw NPVs do not reflect the replication cash flows. k. 2. What is each projects equivalent annual annuity? Answer: We begin with the NPVs found in the previous step. We then find the annuity payment stream that has the same present value as follows: For Project S, input the following: N = 2, I/YR = 10, PV = 4,132.23, FV = 0, and solve for PMT = EAA = $2,380.95. For Project L, input the following: N = 4, I/YR = 10, PV = 6,190.49, FV = 0, and solve for PMT = EAA = $1,952.92. Project S is preferred because it has a higher EAA....
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- Spring '08