Author Question: Which of the following is NOT an example of annuity cash flows? A) The university tuition bill ... (Read 85 times)

CQXA · **on:** Jul 10, 2018

Which of the following is NOT an example of annuity cash flows?

A) The university tuition bill you pay every month that is always the same
B) The grocery bill that changes every week
C) The 3.50 you pay every morning for a bagel and coffee as you run to your first morning class
D) All of the examples above are annuity cash flows.

Question 2

The Meacham Tire Company 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 -115,000
1 38,000 28,500
2 25,000 49,500
3 35,000 26,850
4 22,600
5 18,750
6 23,500
The required rate of return on these projects is 14 percent. What decision should be made? As part of your
answer, calculate the NPV assuming a replacement chain for Project S, and also calculate the equivalent annual
annuity for each project.

ecox1012 · **Reply #1 on:** Jul 10, 2018

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