Question: Two mutually exclusive projects, Alpha and Beta have free cash flows listed below with unequal lives. The firm has a cost of capital of 15%.
Two mutually exclusive projects, Alpha and Beta have free cash flows listed below with unequal lives. The firm has a cost of capital of 15%. Use the replacement chain method to determine which of the two projects should be selected:
|
| Alpha | Beta |
| Year 0 | ($18,543) | ($45,664) |
| Year 1 | $5,000 | $20,000 |
| Year 2 | $5,000 | $20,000 |
| Year 3 | $5,000 | $20,000 |
| Year 4 | $5,000 |
|
| Year 5 | $5,000 |
|
| Year 6 | $5,000 |
|
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