Atlas Corp. is considering two mutually exclusive projects. Both require an init
ID: 2827066 • Letter: A
Question
Atlas Corp. is considering two mutually exclusive projects. Both require an initial investment of $11,500 att-O. Project S has an expected life of 2 years with after-tax cash inflows of $5,800 and $7,700 at the end of Years 1 and 2, respectively. Project L has an expected life of 4 years with after-tax cash inflows of $4,136 at the end of each of the next 4 years. Each project has a WACC of 9.25%, and Project S can be repeated with no changes in its cash flows. The controller prefers Project S, but the CFO prefers Project L. How much value will the firm gain or lose if Project L is selected over Project S, i.e., what is the value of NPVL - NPVs when replacement chain method is applied (both have 4 years life then)? A) $1,064.93 B) $1,562.23 C) $1,321.06 D) $478 E) $367Explanation / Answer
The Diffrence of the NPV of both projects are =
1826.28 - 260.233 = 1566.048
that means the answer (B) is correct , the difference is due to rounding off or decimal places values
Project S Project L Stage Cash Flow PVF@ 9.25% PV Stage Cash Flow PVF@ 9.25% PV 0 -11500 1 -11500 0 -11500 1 -11500 1 5800 0.915 5308.924 1 4136 0.915 3785.812 2 7700 0.838 6451.309 2 4136 0.838 3465.274 NPV 260.2333 3 4136 0.767 3171.876 4 4136 0.702 2903.319 1826.282Related Questions
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