Replacement Decisions with Unequal Lives. Consider two projects, X and Y:
|
Project
|
Cost
|
Life
|
Annual After-Tax Cash Inflow
|
|
X
|
$50,000
|
10 years
|
$9,000
|
|
Y
|
50,000
|
15
|
7,500
|
The company's cost of capital is 10 percent.
1. Determine the adjusted NPV for each project, using the replacement chain procedure.
2. Determine the equivalent annual annuity for each project.
3. Which project should be taken?