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A firm is evaluating two mutually exclusive projects that have unequal lives. Evaluate the projects using the equivalent annual annuity approach (EAA), recommend which project they should select. The firm's cost of capital has been determined to be 18 percent, and the projects have the following initial investments and cash flows:
Project W Project Y
Initial investment: ($40,000)($58,000)
Cash flows: 1 $20,000 $30,000
2 $20,000 35,000
3 $20,000 40,000
4 $20,000
5 $20,000

Basic Finance, Finance

  • Category:- Basic Finance
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