$7.$ Unequal project lives

Wizard Inc. has to choose between two mutually exclusive projects. If it chooses project A$,$ Wizard Inc. 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 $13\%?$

Cash Flow

Project A Project B

Year $0$: $$$$12,500$ Year $0$: $$$$40,000$

Year $1$: $8,000$ Year $1$: $9,000$

Year $2$: $14,000$ Year $2$: $13,000$

Year $3$: $13,000$ Year $3$: $12,000$

$($Years $4,5,$ and $6$ are ONLY for Project B:$)$ Year $4$: $11,000$

Year $5$: $10,000$

Year $6$: $9,000$

$$18,429$

$$17,345$

$$21,681$

$$19,513$

$$16,261$

Wizard Inc. is considering a three$-$year project that has a weighted average cost of capital of $12\%$ and a NPV of $$49,876.$ Wizard Inc. can replicate this project indefinitely. What is the equivalent annual annuity $($EAA$)$ for this project?

$$21,804$

$$24,919$

$$22,843$

$$23,881$

$$20,766$