Under what circumstance is the use of the equivalent annual cost (EAC) method to compare substitutable projects with different lives clearly more efficient computationally than using multiple investments over a common period where both projects terminate in the same year?
Answer to relevant QuestionsIn almost every example so far, firms must decide to invest in a project immediately or not at all. But suppose that a firm could invest in a project today or it could wait one year before investing. How could you use NPV ...What is meant by potential investments relevant cash flows? What are sunk costs and cannibalization, and do they affect the process of determining proposed investments incremental cash flows? Two firms in the same industry have very different equity betas. Offer two reasons why this could occur. Assuming that there are no corporate income taxes, how can the costs of preferred stock and debt be estimated without finding a preferred stock and a bond beta? In what key ways do share issue privatizations (SIPs) differ from private- sector share offerings? Why do you think governments deliberately under-price SIPs?
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