A firm is evaluating two mutually exclusive projects that have unequal lives. Evaluate the projects using the equivalent annual annuity approach (EAA), recommend which project they should select. The firm's cost of capital has been determined to be 18 percent, and the projects have the following initial investments and cash flows: {Hint: Pages 141-142}
Project W
Project Y
Initial investment:
($40,000)
($58,000)
Cash flows:
1
$20,000
$30,000
2
$20,000
35,000
3
$20,000
40,000
4
$20,000
5
$20,000