Farmer Co. is considering Projects S and L, whose cash

Farmer Co. is considering Projects S and L, whose cash

Question # 00627163 Posted By: dr.tony Updated on: 12/13/2017 08:38 AM Due on: 12/13/2017
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1. Farmer Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and repeatable.

Year 0 1 2 3 4

CFS -$950 $600 $700

CFL -$2,100 $600 $800 $900 $700

WACC: 11%

One suggestion is to use the replacement chain to make the two projects equal in life by repeating Project S at end of the 2nd year. If this method is used, which project is to provide a higher NPV in the four-year term? Show the calculations.

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  1. dr.tony
    Tutorial # 00625894 Posted By: dr.tony Posted on: 12/13/2017 08:39 AM
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