Chapter 13 - 59,000 59,000-100,000-41,000 Replacement chain...

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    13-1 CHAPTER 13 Other Topics in Capital Budgeting Evaluating projects with unequal lives Skip real options
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    13-2 Evaluating projects with  unequal lives Projects S and L are mutually exclusive, and will  be repeated.  If WACC = 10%, which is better?         Expected Net CFs Year  Project S  Project L   0 ($100,000) ($100,000)   1        59,000        33,500   2        59,000        33,500   3        -        33,500   4        -        33,500
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    13-3 Solving for NPV,  with no repetition Enter CFs into calculator CFLO register for  both projects, and enter I/YR = 10%. NPV S  = $2,397 NPV L  = $6,190 Is Project L better? Need replacement chain and/or  equivalent annual annuity analysis.
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    13-4 -100,000 59,000 59,000
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Unformatted text preview: 59,000 59,000-100,000-41,000 Replacement chain Use the replacement chain to calculate an extended NPV S to a common life. Since Project S has a 2-year life and L has a 4-year life, the common life is 4 years. 1 2 3 10% 4 NPV S = $4,377 (on extended basis) 13-5 Equivalent Annual Annuity Using the previously solved for project NPVs, the EAA is the annual payment that the project would provide if it were an annuity. Project S Enter N = 2, I/YR = 10, PV = -2397, FV = 0; solve for PMT = EAA = $1,381. Project L Enter N = 4, I/YR = 10, PV = -6190, FV = 0; solve for PMT = EAA = $1,953. Project L is better!...
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