Mulroney Corp. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project X 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 Y 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. Each project has a WACC of 8%.
1. Use the replacement chain approach to determine the common life NPV of the most profitable project.
a. $4,484
b. $4,734
c. $5,120
d. $5,897
e. $5,456
2. Use the EAA approach to determine the Equivelent annual annuity of the most profitable project.
a. $912.32
b. $980.79
c. $1,156.34
d. $1,353.85
e. $1,698.47