Question: Consider the following two mutually exclusive projects. Project A has an initial cost of $190 million and will result in positive cash flow of $87

Consider the following two mutually exclusive projects. Project A has an initial cost of $190 million and will result in positive cash flow of $87 million for three years. Project B has an initial cost of $360 million and will result in a postive cash flor of $98.3 million for six years. Assume a 14% Cost of capital.

a) Calculate the NPV and IRR of each project ( Assume no replacement chain).

b) Calculate the Effective Annual Annuity of each project.

c) Which project is superior based on the NPV, IRR and EAA metric?

d) Explain how the replacement chain approach would work here in a sentence or two (no need to calculate new NPV etc.)

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