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Calculate the equivalent annual annuity for project wetube

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Reference no: EM132499743

Use the information below for the following two questions.

Point 1: You are a bright-eyed analyst at Google. Your boss explains that your team has the option to choose between some MER (Mutually Exclusive & Repeatable) projects. Project WeTube has an inital outlay of 1200, and Project MoogleMaps has an inital outlay of 800. WeTube offers cashflows of 1000 for the first two years, and 1400 for the next two years. Meanwhile, MoogleMaps looks rather promising with cashflows of 1200 for the next 3 years! The required rate of return WeTube is 13.4% and MoogleMaps RRR is 15%.

Question 1: Using the replacement chain approach, which of the two projects should you invest in?

  1. Project WeTube, because its NPV of 4465M is greater than MoogleMaps'.
  2. Project MoogleMaps, because its NPV of 4605M is greater than WeTube's.
  3. Project WeTube, because its NPV of 4076M is greater than MoogleMaps'.
  4. Project MoogleMaps, because its NPV of 4992M is greater than WeTube's.

Question 2: Based off of the previous infomation, calculate the equivalent annual annuity for Project WeTube!

  1. 792M
  2. 768M
  3. 850M
  4. 827M

Reference no: EM132499743

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