Seattle Manufacturing is considering the purchase of one of three mutually exclusive projects for improving its assembly line. The firm plans to use a 14 % cost of capital to evaluate these equal-risk projects. The initial outlay and annual cash outflows over the life of each project are shown in the following table.
a. Calculate the NPV for each project over its life. Rank the projects in descending order based on NPV.
b. Use the equivalent annual cost (EAC) approach to evaluate and rank the projects in descending order based on the EAC.
c. Compare and contrast your findings in parts (a) and (b). Which project would you recommend that the firm purchase? Why?

  • CreatedMarch 26, 2015
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