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2. Doher Intemational is considering twomutually exclusive projects with unequal lives. Doher anticipates being able to repeat eachproject each time it is completed. The cash flows are given as: Project A -$10,000 +$9,000 +$7,000 Project FB $8,000 +$8,000 +$2,000 +$2,000 +$2,000 +$2,000 0 2 4 Compute the NPV and the internal rate of return for each project, then use the equivalent annuity approach to select the best project. Assume the required rate of return for each project is 12% Doher Intemational also struggles with a question of whetherto use high quality vehicles for their fleet that cost more to purchase, butless to operate, or low quality vehicles which lost less but more to 3. ate. The cash costs of each tvpe of vehicles are: High Qualit -$16,000 -$1,000 -$2,000 -$3,000 $4,000 Low Qualit $12,000 -$2,000 $3,000 $4,000 -$6,000 0 2 4 Compute the least-cost vehicle using a discount rate of 15%

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3 Project A Years> 5 Cash flows 6 | Discounting factor @ 12% 7 Discounted cash flows 0 -10,000 1.000 10,000 1 9,000 0.893 8,036 2 7,000 0.797 5,580 9 NPV 10 IRR 11 EAA 12 13 Project B 14 Years> 15 Cash flows 16 | Discounting factor @ 12% 17 Discounted cash flows 3,616.1 40.0% 2,139.6 8,000 1.000 8,000 8,000 0.893 7,143 2,000 0.797 1,594 3 2,000 0.712 1,424 4 2,000 0.636 1,271 2,000 0.567 1,135 19 NPV 20 IRR 21 EAA 4,566.7 43.8% 1,266.8 23 Since EAA of Project A is higher, Project A is a better option 2425 26 3 27 High Quality 28 Years> 29 Cash flows 30 | Discounting factor @ 15% 31 Discounted cash flows 32 33 PVCO 34 35 Low Quality 36 Years> 37 Cash flows 38 |Discounting factor @ 15% 39 Discounted cash flows 40 41 PVco 16,000 1.000 16,000 1,000 0.870 870 2 2,000 0.756 1,512 -3,000 0.658 1,973 4 -4,000 0.572 2,287 22,641.4 -12,000 1.000 -12,000 -2,000 0.870 -1,739 2 -3,000 0.756 -2,268 -4,000 0.658 -2,630 6,000 0.572 -3,431 -22,068.1 43 Since PVCO of Low Quality is lower, it should be selected 45Prolect A Years> C4+1 =D4+1 Cash tlws 1000 D6/11+12%) Discounted cash flows -D5 D6 NPV IRR EAA IRR(CS:E5) s(12%C9)/(1-(1+12%)^(-2)) 12 14 16 Discounting factor Project B Years> Cash tlnws -С 14+1 D14+1 = E 14+1 -F14+1 G14+1 -c1b/(1 +12%) -D15 D16 D16/1-12 C15 E16 t16/(1+12%) F15 F16 +1b1+1 -G15 G16 G16 11+12 H15 H16 Discounted cash flows -C15 C16 18 19 20 NPV SUMIC17:H17) -IRR(C15:H15) s(12%C19)/( 1-(1+12%H-5)) EAA 23 ce EAA of Project A is higher, Project A is a better

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