inftows of $6,000 and $8,000 at 0%. Use the replacement Mutroney Corp, is consid

Question

inftows of $6,000 and $8,000 at 0%. Use the replacement Mutroney Corp, is considering two mutually exclusive projects. Both require an initial investment of the end of Years 1 and 2, respectively Project Y chain approach to determine the NPV of the most profitable project. 0,000 att o Project X has an expected ife of 2 years with after-tax cash r has an expected life of 4 years with after-tax cash inflows of $4,300 at the end of each of the next 4 years. Each project has a WACC of 1 O$3773 $3,286 $3242 O $3,433

Explanation / Answer

Answer to sum in screenshot 1

Replacement chain method is based on follwoing assumptions:

1. any project can be repeated exactly at its replication date

2. cost of capital remains constant

3. all cashflows remain the same at any iteration

The life span of Project X is 2 years and for Project Y is 4 years.

Minimum common mulitiple for the lifespan is 4, which means Project X should be repeated twice while Project Y is done once.  

Since NPV of Project X is more than Project Y, using the replacement chain approach the NPV of the most profitable project is $3773

Answer for 2nd Screenshot

Years 0 1 2 3 4 Project X -10000 6000 8000 Project Y -10000 4300 4300 4300 4300

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.