Reference no: EM132515005
Jonathan Inc. uses a 12% cost of capital and is evaluating two mutually exclusive projects that are repeatable. The cash flows of the projects are as follows:
Project S Project T
Year 0 (200,000) (200,000)
Year 1 85,000 155,000
Year 2 85,000 155,000
Year 3 85,000
Year 4 85,000
Year 5 85,000
Year 6 85,000
Question 1. Using the replacement chain or common life approach, what is the common life NPV of Project S and T, respectively?
a. P149,469.62 and P150,725.74
b. P149,469.62 and P61,957.91
c. P170,197.16 and P69,008.26
d. P170,197.16 and P437,268.14
e. P149,469.62 and P437,268.14
Question 2. Using the equivalent annual annuity approach, what is the EAA of Project S and T, respectively?
a. P88,440.89 and P36,660.38
b. P36,354.86 and P15,069.76
c. P36,354.86 and P36,660.38
d. P88,440.89 and P15,069.76
e. P34,319.33 and P35,699.56
Question 3. Which project(s) should Jonathan choose?
a. Only Project S.
b. Only Project T.
c. Both Project S and T.
d. Neither Project S nor T.
e. Insufficient information.