Incomet

Question $27$

$\frac{0}{2}$ pts

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

Year $0$

Year $1$

Year $2$

Year $3$

Year $4$

T

$-$$$105$ million

$$62$ milion

$$62$ million

F

$$105$ mitlion

$$33$ milion

$$33$ million

$$33$ million

$$33$ million

Assuming a WACC of $7\mathrm{.}5\%,$ 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.

Project T is better as its NPV is higher by $$797\mathrm{.}274$