1 2 3 4 5 6 7 (6 marks) Tidy Lila Inc. is considering a service contract for its janitorial work. One firm has offered a four-year contract for $180,000, while another firm has offered a six-year contract for $250,000. The firm will be able to save $50,000 per year under either contract because its employees will no longer have to do the work themselves. a. If the firm's cost of capital is 10%, which project should be selected? Show NPV and EAA capital budgeting techniques. Justify your answer using the most appropriate of these techniques. b. If the firm's cost of capital is 8%, does it change the decision? 9 10 11 12 13 14 15 a) Project A Project B 10.07 Project A Project B CFO CF1 CF 2 CF3 NPV EAA (PMT) = Which Project Should be Selected? CF4 CFs CF b) r = 87 Project A Project B n = NPV EAA (PMT) = Which Project Should be Selected? 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 1 2 3 4 5 6 7 (6 marks) Tidy Lila Inc. is considering a service contract for its janitorial work. One firm has offered a four-year contract for $180,000, while another firm has offered a six-year contract for $250,000. The firm will be able to save $50,000 per year under either contract because its employees will no longer have to do the work themselves. a. If the firm's cost of capital is 10%, which project should be selected? Show NPV and EAA capital budgeting techniques. Justify your answer using the most appropriate of these techniques. b. If the firm's cost of capital is 8%, does it change the decision? 9 10 11 12 13 14 15 a) Project A Project B 10.07 Project A Project B CFO CF1 CF 2 CF3 NPV EAA (PMT) = Which Project Should be Selected? CF4 CFs CF b) r = 87 Project A Project B n = NPV EAA (PMT) = Which Project Should be Selected? 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37