Additional Sample Test Problems

Additional Sample Test Problems - Additional End-of-Chapter...

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Additional End-of-Chapter Problems for Ch. 12 1. (Unequal Lives) Haley’s Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial investment of $10,000 and are typical average-risk projects for the firm. Project A has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,000 at the end of years 1 and 2, respectively. Project B has an expected life of 4 years with after-tax cash inflows of $4,000 at the end of each of the next 4 years. The firm’s WACC is 10%. a. If the projects cannot be repeated, which project should be selected if Haley used NPV as its criterion for project selection? b. Assume that the projects can be repeated and that there are no anticipated changes in the cash flows. Use the replacement chain analysis to determine the NPV of the project selected. c. Make the same assumptions as in Part b. Using the equivalent annual annuity (EAA) methods, what is the EAA of the project selected? Solutions:
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This note was uploaded on 11/11/2011 for the course FIN 350 taught by Professor Chen during the Spring '07 term at S.F. State.

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Additional Sample Test Problems - Additional End-of-Chapter...

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