(Answered) Farmer co is considering projects s and l whose cash flows

Management Studies

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

CF_S -$950 $600 $700

CF_L -$2,100 $600 $800 $900 $700

WACC: 11%

One suggestion is to use the replacement chain to make the two projects equal in life by repeating Project S at end of the 2^nd year. If this method is used, which project is to provide a higher NPV in the four-year term? Show the calculations.

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Business Management, Management Studies

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