Matahari Energy Malaysia is considering Project A and Project B, which are two mutually exclusively projects with
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Question:
Matahari Energy Malaysia is considering Project A and Project B, which are two mutually exclusively projects with unequal lives. Project A is an eight-year project that has an initial outlay or cost of $180,000. Its future cash inflows for years 1 through 8 are $38,000. Project B is a six-year project that has an initial outlay or cost of $160,000. Its future cash inflows for years 1 through 6 are the same at $36,000. The company uses the equivalent annual annuity (EAA) method and has a discount rate of 11.50%. Calculate the EAA for both projects. Evaluate which project the company should choose with justifications. (15 Marks)
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