Mutually Exclusive Projects with Unequal Lives.
Murray's Coffee House is trying to choose between two new coffee bean roasters. The required rate of return for either machine is 10%. Shown below are the after-tax cash flows associated with each machine:
year CFX CFY
0 (50,000) (30,000)
1 20,000 20,000
2 20,000 20,000
3 20,000
4 20,000
a. Calculate the replacement chain NPV for each project.
b. Calculate the equivalent annual annuity for each project.
c. Which project should be selected? Why?