Question: Disco Kings is evaluating two mutually exclusive projects that have the following before-tax cash flow patterns: Project A Project B Initial outlay 200 000 350

Disco Kings is evaluating two mutually exclusive projects that have the following before-tax cash flow patterns:

Project A Project B

Initial outlay 200 000 350 000

Annual net cash flow 80 000 90 000

Terminal value 60 000 80 000

Project Life 3 years 6 years

The before tax cost of capital is 15%. The company has asked you to advise on which project to accept, and want you to use the equivalent annual annuity method to make a recommendation. As a FIN601Sem, Corporate Finance student, provide a recommendation to Disco Kings. Support your recommendation with relevant calculations.

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