Capital Budgeting

Question

Consider following two unequal mutually exclusive projects:

WACC=12%

Project A

Cost: $40,000

Year	Cash Flows ($)
1	8,000
2	14,000
3	13,000
4	12,000
5	11,000
6	10,000

Project B

Cost: $ 20,000

Year	Cash Flow ($)
1	7,000
2	13,000
3	12,000

Required

1. Using NPV Analysis, estimate which project should you accept? Assume that projects cannot be replicated.
2. Using Replacement Chain Adjustment for equal Life, which project will you select.
3. Using Equivalent Annual Annuity (EAA) method, which project will you accept.