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HPC is considering two unequal-lived, mutually exclusive capital budgeting projects
HPC is considering two unequal-lived, mutually exclusive capital budgeting projects. The cash flows for each project are shown below. Calculate the NPV and the annualized net present value (ANPV) for each project, using the firm's 11% WACC. Which project would you recommend, and why?
Year
Project A
Project B
0
$(54,000)
$(78,000)
1
$16,000
$36,000
2
$25,000
$32,000
3
$35,000
$28,000
4
$38,000
$24,000
5
$20,000
6
$16,000
7
$14,000
8
$12,000
Expert Solution
According to NPV technique, project B should be accepted because it's NPV is higher. But according to ANPV, project A should be accepted because it's ANPV is higher.
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