Principles of Finance (FIN 3213)
Net Present Value and Internal Rate of Return
Homework #20, 10 points
due 5:30 p.m., Tuesday 11/17/20
Consider the following mutually exclusive projects.
Year
0
1
2
3
4
5
6
Cash flows
for Project REC
-1000
500
1400
Cash flows
for Project XYZ
-1000
100
300
400
600
350
125
The appropriate WACC for both projects is 5% per year.
1.
Using the Replacement Chain method, which of the two mutually exclusive projects should be
chosen? Why? Project REC, NPV: 2,036.47>0, NPV: REC 2,036.47 > XYZ 574.01
2.
Using the Equivalent Annual Annuity (EAA) methods, which of the two mutually
exclusive projects should be chosen? Why? Project REC, EAA: REC: 401.22 > XYZ: 113.09