Answer Happy

1. Sanderson Sand Co. is looking at 2 projects –
Project N and Project O. The cashflows of the 2 projects
are as follows:
Project
N Project
O
Year
0 (3000) Year
0 (5000)
Year
1 1,700 Year
1 3,200
Year
2 1,600 Year
2 1,800
Year
3 1,000 Year
3 900
Year
4 1,300 Year
4 700
Year
5 500 Year
6 400
The firm’s cost of capital is 10%.
Calculate the replacement-chain NPV for each
project. Which project would be preferred under the
replacement chain method?
2. Kermit Kite Co. has 2 projects under consideration
– Project C and Project D with the following cashflows.
Project
C Project
D
Year
0 (800,000) Year
0 (360,000)
Year
1 450,000 Year
1 200,000
Year
2 350,000 Year
2 265,000
Year
3 215,000
The firm’s cost of capital is 12%.
Calculate the EAA for each project. Which is the preferred
project under EAA and why?
Please write it on your keyboard.