Question: Wilson Co. is considering two mutually exclusive projects. Both require an initial investment of $40,000 and their risks are average for the firm. Project X

Wilson Co. is considering two mutually exclusive projects. Both require an initial investment of $40,000 and their risks are average for the firm. Project X has an expected life of 2 years with after-tax cash inflows of $20,000 and $38,000 at the end of Years 1 and 2, respectively. Project Y has an expected life of 4 years with after-tax cash inflows of $25,000 at the end of each of the next 4 years. The firm's WACC is 11.00%.

Determine the equivalent annual annuity of the most profitable project. Do not round your intermediate calculations.

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SOLUTION To determine the equivalent annual annuity EAA of each project we need to calculate the present value PV of the cash inflows and then divide it by the present value annuity factor Lets calcul... View full answer

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