Question

NOTE I WANT THE SOLUTION OF ALL SUBPARTS PLEASE IN DETAILS.

Project A has a cost of $15000, a 3-year life, and after-tax cash flows of $10,000, $8,000 and $6,000 respectively

Project B has a cost of $15000, a 5-year life, and after-tax cash flows of $10,000, $5,000, $4,000, $3,000 and $2,000 respectively

Both projects have a WACC of 9%.

15. The NPV for project A is: *

A. $5,540.85

B. $5,555.85

C. $6,500.21

D. $9,000

E. None of the above

16. The NPV for project B is: *

A. $9,000

B. $4,896.58

C. $5,540.85

D. $0

E. None of the above

17. The Equivalent Annual Annuity (EAA) for project A is: *

A. $2,861.34

B. $2,961.34

C. $2,061.34

D. $2,188.94

E. None of the above

18. The Equivalent Annual Annuity (EAA) for project B is: *

A. $1,258.87

B. $0

C. $2,961.34

D. $3,200

E. None of the above

Answer 1

a). Calculating the NPV of the Project A:-

Year	Cash Flows of Project A ($)	PV Factor @9.00%	Present Value of Project A ($)
0	(15,000.00)	1.0000	(15,000.00)
1	10,000.00	0.9174	9,174.31
2	8,000.00	0.8417	6,733.44
3	6,000.00	0.7722	4,633.10
			5,540.85

So, NPV of The Project A is $5,540.85

hence, Option A

b). Calculating the NPV of the Project B:-

Year	Cash Flows of Project B ($)	PV Factor @9.00%	Present Value of Project's B ($)
0	(15,000.00)	1.0000	(15,000.00)
1	10,000.00	0.9174	9,174.31
2	5,000.00	0.8417	4,208.40
3	4,000.00	0.7722	3,088.73
4	3,000.00	0.7084	2,125.28
5	2,000.00	0.6499	1,299.86
			4,896.58

So, NPV of The Project B is $4,896.58

Hence, Option B

c). Calculating Equivalent Annual Annuity (EAA) for project A :-

ΕΑΑ T* NPV 1- (1+r)-η

where, r = WACC = 9%

NPV = $5,540.85

n = no of years = 3

ΕΑΑ 0.09 * 5, 540.85 1- (1 + 0.09)-3

ΕΑΑ 0.09 * 5, 540.85 1 – 0.77218348006

ΕΑΑ 498.6765 0.22781651994

EAA = $2,188.94

Hence, Option D

d). Calculating Equivalent Annual Annuity (EAA) for project B :-

ΕΑΑ T* NPV 1- (1+r)-η

where, r = WACC = 9%

NPV = $4,896.58

n = no of years = 5

$EAA = \frac{0.09*4896.58}{1-(1+0.09)^-5}$

$EAA = \frac{0.09*4896.58}{1-0.64993138629}$

EAA = $1,258.87

Hence, Option A

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ΕΑΑ 0.09 % 1, 471.45 1- (1 + 0.09)-3

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