Based on replacement chain approach

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Reference no: EM132005882

The Paylog, Inc. has two mutually exclusive projects one a 2-year and the other a 4-year project. The firm's cost of capital is 8%. The cash flows for these projects are given below:

Years Project A Project B

0 .........- $8,000 .... - $12,000

1 .........$7,000 .........$6,000

2......... $7,000 .........$6,000

3 ..............................$6,000

4 ..............................$6,000

a) Show each project on the time-line.

b) Which project would you choose based on the NPV method? Why may this not be appropriate in this case?

c) Which project would you choose based on Replacement Chain approach?

d) Which project would you choose based on Equal Annual Annuity (EAA) method also known as Annualized NPV method?

e) Can inflation or deflation affect your results? How?

Please answer all questions and show all steps.

Reference no: EM132005882

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