Crossborder,Inc

question 68

Multiple Choice

Crossborder,Inc.is considering Project A and Project B,which are two mutually exclusive projects with unequal lives.Project A is an eight-year project that has an initial outlay or cost of $140,000.Its future cash inflows for years 1 through 8 are the same at $36,500.Project B is a six-year project that has an initial outlay or cost of $160,000.Its future cash inflows for years 1 through 6 are the same at $48,000.Crossborder uses the equivalent annual annuity (EAA) method and has a discount rate of 13%.Which project(s) ,if any,will Crossborder accept?

• A)Crossborder will take Project B because it has a positive NPV and its EAA is greater than that for Project A.
• B)Crossborder rejects both projects because both have a negative NPV (and thus negative EAA).
• C)Crossborder accepts both projects because both have a positive NPV (and thus positive EAA).
• D)Crossborder accepts Project A because its EAA of about $7,975 is greater than Project B's EAA of about $6,440.

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