Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable....

 

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Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project T F Year 0 Year 1 -$105 million $62 million -$105 million $33 million Year 2 $62 million $33 million Year 3 $33 million Year 4 $33 million Assuming a WACC of 7.5%, use the replacement chain approach (RCA) to compare the projects and pick the better choice, given repetition. Note that the investment in project T rises by 7% when repeated, but the other cash flows stay the same. Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project T F Year 0 Year 1 -$105 million $62 million -$105 million $33 million Year 2 $62 million $33 million Year 3 $33 million Year 4 $33 million Assuming a WACC of 7.5%, use the replacement chain approach (RCA) to compare the projects and pick the better choice, given repetition. Note that the investment in project T rises by 7% when repeated, but the other cash flows stay the same.

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Project Comparison using Replacement Chain Approach RCA Since projects T and F are mutually exclusive with different lifespans well use the Replacemen... View the full answer