Farmer Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and repeatable. Year 0 1 2 3 4 CFS -$900 $800 $600 CFL -$700 $300 $200 $400 $200 WACC: 10% Given the two projects are of different length and both are repeatable, one suggestion is to use the replacement chain approach in evaluation. If this approach is used, which project will you choose? Show the calculations and explain your decision.
Farmer Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and repeatable.
Year 0 1 2 3 4
CFS -$900 $800 $600
CFL -$700 $300 $200 $400 $200
WACC: 10%
Given the two projects are of different length and both are repeatable, one suggestion is to use the replacement chain approach in evaluation. If this approach is used, which project will you choose? Show the calculations and explain your decision.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
