Johnson Jets is considering two mutually exclusive projects. Project A has an up-front cost of $122,000 (CF
Question:
Johnson Jets is considering two mutually exclusive projects. Project A has an up-front cost of $122,000 (CF0 = -122,000), and produces positive after-tax cash inflows of $30,000 a year at the end of each of the next six years. Project B has an up-front cost of $60,000(CF0 = -60,000) and produces after-tax cash inflows of $20,000 a year at the end of the next four years. Assuming the cost of capital is 10.5%,
1. Compute the equivalent annual annuity of project A in box 1. Round the EAA to a whole dollar without the dollar sign or comma, e.g., 3452 (non-negative number)
2. Compute the equivalent annual annuity of project B in box 2. The same format as box 1.
3. Decide which project to undertake in box 3, either Project A or Project B.
options:
Blank # 1 | |
Blank # 2 | |
Blank # 3 |
Fundamentals of Financial Management
ISBN: 978-0324597707
12th edition
Authors: Eugene F. Brigham, Joel F. Houston