Using equivalent annual annuity method

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Mellon Corp. is considering two mutually exclusive projects to boost their tourist revenue. Project A costs $60,000 and would produce net cash flows of $25,000 for 5 years. Project B cost $100,000 and will produce annual net cash flows of $25,000 for 10 years. If Mellon cost of capital is 12%, which project should be chosen using the equivalent annual annuity method?

a. Project B, NPV is $41,250

b. Project A, NPV is $28,300 higher

c. Project B, EAA $6,203

d. Project A, EAA $8,356

Reference no: EM131584623

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