Crossborder, Inc. is considering Project A and Project B, which are two mutually exclusive projects with unequal lives. Project A is an eight−year project that has an initial outlay or cost of $140,000. Its future cash inflows for years 1 through 8 are the same at $36,500. Project B is a six−year project that has an initial outlay or cost of $160,000. Its future cash inflows for years 1 through 6 are the same at $48,000. Crossborder uses the equivalent annual annuity (EAA) method and has a discount rate of 13%. Which project(s), if any, will Crossborder accept?

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ewomazinoade ewomazinoade · Answer 1 · 2021-06-18T02:34:55+02:00

Answer:

project B

Explanation:

equivalent annual annuity (EAA) method = r(NPV) / [1 - (1/(1 + r)^n)]

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Project A

Cash flow in year 0 = $-140,000

Cash flow in year 1 - 8 = $36,500

I = 13

NPV =

35,155.12 7325.86

31,882.39 =

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