A trend among universities is to guarantee tuition to incoming ...

[maychende]

A trend among universities is to guarantee tuition to incoming freshmen for a four-year period. Further, the annual amount due is collected in equal payments collected every three months.
 
  Although the payments are equal as well as equally spaced, this is NOT an example of an annuity because the payments are made every three months rather than on a monthly or annual basis.
  Indicate whether the statement is true or false.

Question 2

The Dickerson PR Firm is considering two mutually exclusive projects with useful lives of 3 and 6 years. The
  after-tax cash flows for projects S and L are listed below.
 
  Year Cash Flow S Cash Flow L
  0 -60,000 -51,500
  1 40,000 13,000
  2 20,000 19,000
  3 17,000 11,000
  4 20,000
  5 10,000
  6 8,000
  Calculate the equivalent annual annuity for each project assuming a required return of 15. What decision
  should be made?

[chem1s3]

Answer to Question 1

Answer: FALSE
Explanation: The payments are equal and equally spaced. Thus, this is an example of annuity cash flows.

Answer to Question 2

Choose Project S. Although the NPV of Project L (NPV = 1,269.21 ) is greater than the NPV of Project S (NPV =
1,083.26), this is due to the longer life of project L. The equivalent annual annuity for Project S is 474.44, while the
equivalent annual annuity for Project L is only 335.37.

[maychende]

Correct answers!

[chem1s3]

Great! Please up vote