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EQUIVALENT ANNUAL ANNUITY A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows: Time Cash Flow X Cash Flow Y 0 ($80,000) ($75,000) 1 40,000 35,000 2 60,000 35,000 3 70,000 35,000 4 _ 35,000 5 _ 5,000 Projects X and Y are equally risky and may be repeated indefinitely. If the firm’s WACC is 10%, what is the EAA of the project that adds the most value to the firm? (Round your final answer to the nearest whole dollar.)

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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

Solutions

Chapter
Section
Chapter 12, Problem 17P
Textbook Problem

EQUIVALENT ANNUAL ANNUITY A firm has two mutually exclusive investment projects to evaluate. The projects have the following cash flows:

Time Cash Flow X Cash Flow Y
0 ($80,000) ($75,000)
1 40,000 35,000
2 60,000 35,000
3 70,000 35,000
4 _ 35,000
5 _ 5,000

Projects X and Y are equally risky and may be repeated indefinitely. If the firm’s WACC is 10%, what is the EAA of the project that adds the most value to the firm? (Round your final answer to the nearest whole dollar.)

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Chapter 12 Solutions

Fundamentals of Financial Management (MindTap Course List)
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