Crockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial investment of

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Crockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial investment of $11,000 and are typical average-risk projects for the firm. Project A has an expected life of 2 years with after-tax cash inflows of $8,000 and $10,000 at the end of Years 1 and 2, respectively. Project B has an expected life of 4 years with after-tax cash inflows of $5,500 at the end of each of the next 4 years. The firm’s WACC is 12%.
a. If the projects cannot be repeated, which project should be selected if Crockett uses NPV as its criterion for project selection?
b. Assume that the projects can be repeated and that there are no anticipated changes in the cash flows. Use the replacement chain analysis to determine the NPV of the project selected.
c. Make the same assumptions as in part b. Using the equivalent annual annuity (EAA) method, what is the EAA of the project selected?

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...

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Related Book For answer-question

Fundamentals of Financial Management

ISBN: 978-1337395250

15th edition

Authors: Eugene F. Brigham, Joel F. Houston

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Question Posted: Mar 06, 2020 09:23 AM

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Crockett Graphic Designs Inc. is considering two mutually exclusive projects. Both projects require an initial investment of

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a Project A Using a financial calculator input the following data CF 0 11000 CF 1 8000 CF 2 10000 IY...View the full answer

Fundamentals of Financial Management

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