Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy...

 

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Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy Corp. will have the opportunity to make a similar Investment in three years. However, if it chooses project B, it will not have the opportunity to make a second Investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%? Cash Flow Project A Project B Year 0: -$15,000 Year 0: -$40,000 Year 1: 9,000 Year 1: 8,000 Year 2: 15,000 Year 2: 16,000 Year 3: 14,000 Year 3: 15,000 Year 4: 12,000 Year 5: 11,000 Year 6: 10,000 Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy Corp. will have the opportunity to make a similar Investment in three years. However, if it chooses project B, it will not have the opportunity to make a second Investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%? Cash Flow Project A Project B Year 0: -$15,000 Year 0: -$40,000 Year 1: 9,000 Year 1: 8,000 Year 2: 15,000 Year 2: 16,000 Year 3: 14,000 Year 3: 15,000 Year 4: 12,000 Year 5: 11,000 Year 6: 10,000

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To calculate the net present value NPV of projects A and B using the replacement chain approach we ... View the full answer