A firm is evaluating two mutually exclusive projects that have unequal lives. Evaluate the projects using

the annualized net present value approach, using the 10% cost of capital and recommend which

project they should select. Evaluate both projects using NPV technique and Annualized Net Present

Value.

*************(Show EVERY MANUAL computation)*****************

	Years	Project E	Project F
Initial Investment		50,000	60,000
Cash Flows	1	20,000	30,000
	2	20,000	35,000
	3	20,000	40,000
	4	20,000
	5	20,000

1.Compute the Annualized Net Present Value for each project:

A

NPV and ANPV-E

B

NPV and ANPV-F

2.Based on computations on B, which project do you recommend and why?

Evaluate the Projects E and F (from Part #3) but, assuming now risk into consideration.

Evaluate the projects using the annualized net present value approach, using the RADR and recommend which project they should select. If the firm considers risk on the evaluation of any project, it uses the CAPM equation to determine the risk adjusted discount rate, RADR. The market rate of return is 9 % and the risk-free rate is 6 %. Both projects have a risk index (beta) of 1.5.

Additional information provided: The firm used a 12% cost of capital.

3.Evaluate both projects using NPV technique and considering adjusting for risk, using RADR.

COMPUTE RADR

COMPUTE THE NET PRESENT VALUE FOR EACH PROJECT