What are the projects equivalent annual annuities

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Reference no: EM131488602

Question: (Equivalent annual annuity) The owners of the Laguna Golden Beachfront Hotel are deciding whether they should tear down their current hotel and replace it with a new hotel or simply remodel it. If they decide to tear down the current hotel and rebuild, the initial outlay would be $22 million and the new hotel would generate free cash flows of $6 million at the end of each year for the next 6 years. If they decide to remodel, the cost will be $12 million and the hotel will generate free cash flows of $4.5 million at the end of each year for the next 4 years. If the required rate of return for both projects is 10 percent and both projects can be repeated indefinitely, which project should they choose and what are the projects' equivalent annual annuities?

Reference no: EM131488602

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