Question

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20 pts Question 2 LO3 WACC = 5% Period Project 1 Project 2 -$75 -$150 0 $90 1 $35 $75 $70 2 $60 3 4 5 Based on the information in the table, what is the equivalent annuity for Project 2? $11.74 O $21.83 O$14.09 O $18.55 $10.91

Answer 1

Equivalent Annuty = NPV / PVAF(r%,n)

NPV = PV of Cash Inflows - PV of Cash Outflows

Year	CF	PVF @5%	Disc CF
0	$   -75.00	1.0000	$   -75.00
1	$    35.00	0.9524	$    33.33
2	$    70.00	0.9070	$    63.49
NPV			$    21.83
PVAF(5%,2)			1.859
Equivalent Annuty = NPV / PVAF(r%, n)			$    11.74

Equivalnet Annuity is $ 11.74. OPtion A is Correct.