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Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year 0 Year 1 Year 2 Year 3 Year 4 T -$95 million $55 million $55 million F -$95 million $30 million $30 million $30 million $30 million Assuming a WACC of 9.5%, use the replacement chain approach (RCA) to compare the projects and pick the betterchoice, given repetition. Note that the investment in project T rises by 1% when repeated, but the other cash flows stay the same. O Project T is better as its NPV is higher by $88.676 O Project F is better as its NPV is higher by $35,520 O Project T is better as its NPV is higher by $35,520 O Project F is better as its NPV is higher by $88,676 O Project T is better without repetition, but project F is better with repetition

Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year 0 Year 1 Year 2 Year 3 Year 4 T -$95 million $55 million $55 million F -$95 million $30 million $30 million $30 million $30 million Assuming a WACC of 9.5%, use the replacement chain approach (RCA) to compare the projects and pick the betterchoice, given repetition. Note that the investment in project T rises by 1% when repeated, but the other cash flows stay the same. O Project T is better as its NPV is higher by $88.676 O Project F is better as its NPV is higher by $35,520 O Project T is better as its NPV is higher by $35,520 O Project F is better as its NPV is higher by $88,676 O Project T is better without repetition, but project F is better with repetition

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
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Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year 0 Year 1 Year 2 Year 3 Year 4 T -$95 million $55 million $55 million F -$95 million $30 million $30 million $30 million $30 million Assuming a WACC of 9.5%, use the replacement chain approach (RCA) to compare the projects and pick the betterchoice, given repetition. Note that the investment in project T rises by 1% when repeated, but the other cash flows stay the same. O Project T is better as its NPV is higher by $88.676 O Project F is better as its NPV is higher by $35,520 O Project T is better as its NPV is higher by $35,520 O Project F is better as its NPV is higher by $88,676 O Project T is better without repetition, but project F is better with repetition
Transcribed Image Text:Consider two projects, T and F, which are mutually exclusive, have unequal lives, and are repeatable. Their cash flows are depicted in the table below: Project Year 0 Year 1 Year 2 Year 3 Year 4 T -$95 million $55 million $55 million F -$95 million $30 million $30 million $30 million $30 million Assuming a WACC of 9.5%, use the replacement chain approach (RCA) to compare the projects and pick the betterchoice, given repetition. Note that the investment in project T rises by 1% when repeated, but the other cash flows stay the same. O Project T is better as its NPV is higher by $88.676 O Project F is better as its NPV is higher by $35,520 O Project T is better as its NPV is higher by $35,520 O Project F is better as its NPV is higher by $88,676 O Project T is better without repetition, but project F is better with repetition
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