The cash flows for two projects,A and B,are shown in the table,below.Notice that Project A has a life of 5 years and Project B has a 3 year life.Calculate the NPV of each project and calculate which should be adopted using the equivalent annual annuity approach.Assume that the cost of capital is 10%.
Definitions:
Welfare Loss
Economic inefficiency resulting from a deviation from an optimal allocation of goods and services, often due to externalities or market power.
Net Social Gain
The overall benefit to society from an economic transaction, after subtracting costs.
Barriers To Entry
Factors that make it difficult for new competitors to enter a market.
Net Social Cost
The total monetary cost of the negative externalities produced by an activity or production, minus any benefits.
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