A firm is considering two mutually exclusive projects. Project A has an initial cost of $

$150$

$,$

$000$

$($

CF

$0$

$=$

$-$

$150$

$,$

$000$

$)$

$$and produces positive after

$-$

tax cash inflows of $

$50$

$,$

$000$

$$a year at the end of each of the next

$3$

$$years$.$ Project B has an initial cost of $

$80$

$,$

$000$

$($

CF

$0$

$=$

$-$

$80$

$,$

$000$

$)$

$$and produces after

$-$

tax cash inflows of $

$40$

$,$

$000$

$$a year at the end of the next

$2$

$$years$.$ If we assume that both projects can be replaced to repeat. The company

$$

s cost of capital is

$8$

$\%$

$.$

$$ What is the most profitable project?

$($

$1$

$)$

$$Use the Replacement Chain Approach. Note: Repeat Project A for

$2$

$$times and repeat Project B for

$3$

$$times$.$

$($

$2$

$)$

$$Use the Equivalent Annual Annuity

$($

EAA

$)$

$$analysis$.$