ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC Telecom will have the opportunity to make a simi investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists t cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 11%? Project A Year 0: Year 1: Year 2: Year 3: Cash Flow -$12,500 8,000 14,000 13,000 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: -$40,000 8,000 16,000 15,000 12,000 11,000

ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC Telecom will have the opportunity to make a simi investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists t cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 11%? Project A Year 0: Year 1: Year 2: Year 3: Cash Flow -$12,500 8,000 14,000 13,000 Project B Year 0: Year 1: Year 2: Year 3: Year 4: Year 5: -$40,000 8,000 16,000 15,000 12,000 11,000

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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