The weighted average cost of capital of Company Summer is 4%. The company is considering two mutually exclusive projects, Project A and Project B. Project life and NPV of the two projects are as follows:

Project	Life	NPV
Project A	3 years	$30 million
Project B	2 years	$26 million

The capital budget of the company is limited by capital. No matter which project is chosen, it will be replaced repeatedly when it wears out. Using the Equivalent Annual Annuity approach, evaluate to determine which project should be chosen.

 

Answer rating: 100% (QA)

To determine which project should be chosen we can use the Equivalent Annual Annuity EAA approach wh... View the full answer