The equivalent annual annuity approach $-$ Evaluating projects with unequal lives

Evaluating projects with unequal lives

Blanche Inc. Is a Canadlan firm that wants to expand its business internationally. It is considering potential projects in both Germany and Thalland,

and the German project is expected to take slx years, whereas the Thal project is expected to take only three years. However, the firm plans to repeat

the Thal project after three years. These projects are mutually exclusive, so Blanche Inc.$\text{'}$s CFO plans to use the equivalent annual annulty $($EAA$)$

approach to analyze both projects. The expected cash flows for both projects follow:

Thal Project

If Blanche Inc.$\text{'}$s cost of capital is $11\%,$ what is the NPV of the German project?

$$212,128$

$$235,698$

$$259,268$

$$200,343$

If Blanche Inc.$\text{'}$s cost of capital is $11\%,$ what is the NPV of the Thal project?

$$67,938\mathrm{.}77$

$$66,739\mathrm{.}95$

$$48,532\mathrm{.}33$

$$71,128\mathrm{.}66$

What is the EAA for the Thal project?

$$19,860\mathrm{.}06$

$$28,439\mathrm{.}52$

$$14,722\mathrm{.}73$

$$23,937\mathrm{.}05$

What is the EAA for the German project?

$$55,610\mathrm{.}58$

$$39,977\mathrm{.}75$

$$55,713\mathrm{.}42$

$$66,070\mathrm{.}93$

If the CFO uses the EAA approach to decide which project to undertake, he should choose the

project because it has the