Web App 12E
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 7.6%. Use the replacement chain to determine the NPV of the
most profitable project.
a.
$2,155.12
b.
$1,937.80
c.
$1,430.71
d.
$1,901.58
e.
$1,811.03
e
b.
c.
d.
e.
1
MODERATE
12E Comparing Mutually Exclusive Projects with Unequal Lives
Multiple Choice
True
FOFM.BRIG.17.12.12E – Comparing Mutually Exclusive Projects with Unequal Lives
United States – BUSPROG.FOFM.BRIG.17.03 – BUSPROG: Analytic
United States – OH – DISC.FOFM.BRIG.17.03 – Capital budgeting and cost of capital
United States – OH – Default City – N/A – Since we still do not have the Cengage Business
School Outcomes, you do not need to include anything for this category.
Replacement chain
Bloom’s: Analysis
Multiple choice: Problems
2. Wilson Co. is considering two mutually exclusive projects. Both require an initial investment of $11,000, 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 9.200%. Determine the equivalent annual annuity of the most
profitable project.
Web App 12E
a.
$1,661.26
b.
$1,192.36
c.
$1,607.67
d.
$1,339.73
e.
$1,393.32
d
0
1
2
-11,000
6,000
8,785
$1,861.60
N
2
I/YR
$1,861.60
$0.00
0
1
2
3
4
-11,000
4,750
4,750
4,750
4,750
$4,321.36
N
4
I/YR
9.20%
$4,321.36
$0.00
b.
c.
d.
e.
1
MODERATE
12E Comparing Mutually Exclusive Projects with Unequal Lives
True