Question

Two mutually exclusive projects have the following positive NPVs and project lives. Project Project A Project B NPV $5,000 $6,500 Life 3 Years 5 Years If the cost of capital were 15 percent, which project would you accept? O Project A, because it has higher EAC O Project B, because it has higher EAC O Project A, because its NPV can be earned more quickly O Project B, because it has higher NPV EAC(A) = 5,000/2.2832 = 2,189.88. (Accept the project with higher EAC.) EAC(B) = 6,500/3.35216 = 1,939.05. Using a financial calculator: EAC(A) = PV = 5,000; 1 = 15; FV = 0; & N= 3; Compute: PMT= -2,189.88. EAC(B) = PV = 6,500; 1 = 15; FV = 0; & N= 5; Compute: PMT = -1,939.05.

show calculation of how to get to the number 2.2832, and 3.35216??how we calculate EAC in detail. show calculation manually in detail please, no calculator!! thank you so much

Answer 1

NPV =5000
Number of years =3
Rate =15%
EAC =PV/((1-(1+r)^-n)/r)=5000/((1-(1+15%)^-3)/15%) =5000/2.2832 =2189.88

NPV =6500
Number of years =5
Rate =15%
EAC =PV/((1-(1+r)^-n)/r)=6500/((1-(1+15%)^-5)/15%) =5000/3.35216 =1939.05