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George, Inc. is considering Project A and Project B, which are two mutually exclusively projects ...

George, Inc. is considering Project A and Project B, which are two mutually exclusively projects with unequal lives. Project A is an eight-year project that has an initial outlay or cost of $180,000. Its future cash inflows for years 1 through 8 are $38,000.Project B is a six-year project that has an initial outlay or cost of $160,000. Its future cash inflows for years 1 through 6 are the same at $36,000. George uses the equivalent annual annuity (EAA) method and has a discount rate of 11.50%. Will George accept the project?
A) George rejects both projects because both have a negative NPV (and thus negative EAA).
B) George accepts Project A because its EAA is about $2,396 and Project B's EAA is only about $1,097.
C) George accepts Project B because it has a more positive EAA.
D) George accepts Project A because its NPV (and thus EAA) is positive and Project B's NPV (and thus EAA) is negative.

Textbook

Financial Management: Core Concepts

Edition: 2^nd

Author: Brooks

Read 436 times

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eggslily

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More solutions for this book are available here

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stranahan Author

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7 years ago

Thank you very much for this. It's really helpful.

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Siming M.

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3 years ago

thank you

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