A company is considering the purchase of one of two mutually exclusive projects for improving its assembly line. The company plans to use a 12% cost of capital for evaluating these two equal-risk projects. The initial outlay and annual cash flows over the life of each project are shown in the following table:
|
Year
|
0
|
1
|
2
|
3
|
4
|
|
L
|
-$130,000
|
35,000
|
5,500
|
62,000
|
81,000
|
|
S
|
-$94,500
|
56,000
|
57,000
|
|
|