Answer Happy

13. The replacement chain approach - Evaluating projects
with unequal lives
Evaluating projects with unequal lives
Cold Duck Manufacturing Inc. is a U.S. firm that wants to expand
its business internationally. It is considering potential projects
in both Germany and Thailand, and the German project is expected to
take six years, whereas the Thai project is expected to take only
three years. However, the firm plans to repeat the Thai project
after three years. These projects are mutually exclusive, so Cold
Duck Manufacturing Inc.’s CFO plans to use the replacement chain
approach to analyze both projects. The expected cash flows for both
projects follow:
Project:
German
Project:
Thai
If Cold Duck Manufacturing Inc.’s cost of capital is 13%, what
is the NPV of the German project?
$199,322
$172,142
$181,202
$144,962
Assuming that the Thai project’s cost and annual cash inflows do
not change when the project is repeated in three years and that the
cost of capital will remain at 13%, what is the NPV of the Thai
project, using the replacement chain approach?
$273,941
$224,133
$249,037
$298,844
Show all work