You are evaluating two mutually exclusive projects One will cost $400,000 initially and will pay $125,000 each year for the next 5 years The other will cost $475,000 initially but will pay $100,000 for the next 10 years The firms cost of capital is 15 Compute the NPV of each project Which project has the highest NPV Use the replacement chain approach to compute the NPV of each Which project now appears best Use the equal annual annuity method to select between the two projects Does this result agree with what you found in part b

Question: You are evaluating two mutually exclusive projects. One will cost $400,000 initially and will pay $125,000 each year for the next 5 years. The other

You are evaluating two mutually exclusive projects. One will cost $400,000 initially and will pay $125,000 each year for the next 5 years. The other will cost $475,000 initially but will pay $100,000 for the next 10 years. The firm’s cost of capital is 15%.

Compute the NPV of each project? Which project has the highest NPV?
Use the replacement chain approach to compute the NPV of each. Which project now appears best?
Use the equal annual annuity method to select between the two projects. Does this result agree with what you found in part b?

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