Question:
The Company is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0.
Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,500 at the end of Years 1 and 2, respectively.
Project Y has an expected life of 4 years with after-tax cash inflows of $4,500 at the end of each of the next 4 years.
Each project has a WACC of 11%.
Set up the equation to find the equivalent annual annuity of the most profitable project.