Web Appendix 12E: Comparing Mutually Exclusive Projects with Unequal Lives
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1. Mulroney Corp. is considering two mutually exclusive projects. Both require an initial investment of $10,000, and their
risks are average for the firm. Project X has an expected life of 2 years with after-tax cash inflows of $5,300 and $7,000 at
the end of Years 1 and 2, respectively. Project Y has an expected life of 4 years with after-tax cash inflows of $3,500 at
the end of each of the next 4 years. The firm’s WACC is 8.60%. Use the replacement chain to determine the NPV of the
most profitable project. Do not round your intermediate calculations.
a. $1,597.44
b. $1,220.69
c. $1,868.71
d. $1,296.04
e. $1,507.02
2. Wilson Co. is considering two mutually exclusive projects. Both require an initial investment of $10,500, and their risks
are average for the firm. Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,785 at the
end of Years 1 and 2, respectively. Project Y has an expected life of 4 years with after-tax cash inflows of $4,750 at the
end of each of the next 4 years. The firm’s WACC is 11.00%. Determine the equivalent annual annuity of the most
profitable project. Do not round your intermediate calculations.
a. $1,474.82
b. $1,351.92
c. $1,543.10
d. $1,365.57
e. $1,570.41
