Question: Project X and Y are mutually exclusive. Project X has a life of 3 years and project Y has a life of 5 years. Use

Project X and Y are mutually exclusive. Project X has a life of 3 years and project Y has a life of 5 years. Use a discount rate of 18 per cent. The following are the cash flows.

Year Project X Project Y

0 -86,000 -110,000

1 36,000 30,000

2 42,000 35,000

3 50,000 40,000

4 - 43,000

5 - 42,000

Compute the NPV of the two projects.

Compute the Equivalent Annual Annuity of the two projects.

Which project should be selected and why?

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